Oral Answers to Questions

Hazel Blears: I may be forgiven for my heart sinking when my hon. Friend said that he did "not wish to be difficult, but"—yet he asked a pertinent question. He is right that there should be wider awareness of the role of regional Ministers. I think that regional Ministers have done some excellent work across the country over the past few months as regional champions for their areas— [Interruption.] Hon. Members might not take regional issues seriously, but if they were genuinely in touch with the issues being raised in their communities they would know that regional Ministers have helped to bring together the regional development agency and the strategic health associations—and have made a difference. To my hon. Friend, I would say that the Government may not have utilised his talents sufficiently in the past—

David Curry: Regional development agencies, which are extremely patchy in quality across the country, are soon to acquire significant new powers with the disappearance of the regional assemblies, notably in housing, yet it is very difficult to assess the quality of outputs from the development agencies. How do we assess whether a job has been created or a job safeguarded—two of the most popular claims of the regional development agencies? What will the Secretary of State do to enable us to develop a proper methodology with which to judge the value for money of the regional development agencies, as this is contested, and to make sure that accountability goes beyond local council chiefs being filed in for the occasional audience?

Iain Wright: The hon. Gentleman makes a good point. I know that his constituency was affected by last year's floods, and I pay tribute to the emergency services, local authorities and others in pulling together to address them. He rightly raises the point about balance: there is a balance to be struck in making sure that householders are able to improve their homes without bureaucracy. That frees up a lot of bureaucracy within the local authority system, and it helps encourage, as much as possible, sustainability. Those are the principles behind the permitted development rights we have introduced for impermeable surfaces for front gardens, and I am keen to look at that their application to rear gardens as well.

Julia Goldsworthy: After their joint meeting last week, the Department and the Local Government Association issued a joint statement saying that
	"there is no evidence of recklessness by local authorities."
	Given that almost £1 billion of public money is tied up in the collapse, if it is not local authorities, who or what does the Secretary of State think is to blame? Is it the credit ratings agencies, the organisations advising the councils or her Department, for the guidance it issues? Is it not vital that that is reviewed? Should there not have been a six-point plan, rather than a five-point plan, today?

Bob Spink: Ministers have confirmed that there is sufficient previously developed—or so-called brownfield land—in the Thames corridor to meet the Government's current building targets for the region in full, so why are the Government continuing to put so much greenbelt at risk in the area, and in Castle Point in particular?

Sadiq Khan: I thank my hon. Friend for the passion he shows on the issue of gender equality, not only in south Yorkshire, but around the country. He will be aware that in 1997 less than 1 per cent. of firefighters in south Yorkshire were women, but now 13 per cent. of new recruits are women. I join him in congratulating the service on the huge strides that it is making towards becoming more fair and gender equal.

Anne McIntosh: Does the Secretary of State not now accept that, at the very least, the guidance that was issued to local authorities should have included advice that the higher the rate of interest, especially over basic deposit rate, the higher the risk?

Henry Bellingham: Is the Secretary of State aware that the boundary committee's proposals for a unitary authority for the whole of Norfolk and part of Suffolk have met with universal opposition? All the MPs, including the four Labour MPs, are totally opposed to the proposals, which would undermine democracy in Norfolk. Does she agree that at a time of economic crisis, when each Department's budget will be under huge pressure, those highly damaging proposals should be scrapped?

Michael Gove: I thank the Secretary of State for his announcement, and for keeping us up to date throughout the summer with the steps taken to resolve the problems with this year's SATs tests. As he eventually admitted, the administration of those tests was a fiasco. I stress that we want to work with him to ensure that we never again put pupils, parent and teachers through the stress and chaos of this last year. Therefore, I want to underline that we welcome the broad thrust of his announcement today.
	First, I welcome the clarity of the Secretary of State's analysis of the case for external assessment at the end of key stage 2. We need proper information on how individual children are making progress, and we need accurate information about how individual schools are doing. However, he is aware that there is still widespread concern that preparation for national curriculum testing occupies too much school time. He will know, I hope, that there are real worries that a move to single-level testing at key stage 2—the so-called "stage not age" testing—may lead to individual schools testing their pupils more often and more intensively as they try and retry to get individual pupils to the appropriate level so that league table rankings improve. Will he ensure in the pilots that he is undertaking that there will not be more tests, more teaching to the test and a narrower learning experience and that there will not be league tables that distort rather than clarify?
	May I also welcome what I take to be the spirit of the Secretary of State's announcement on key stage 3 testing? I have argued for fewer national tests and more rigour, and we want to work constructively to improve the assessments and qualifications regime. So I welcome his proposal to ensure that all parents have timely information each year about the progress that children are making between 11 and 14.
	The transition from primary to secondary can often be a time when pupils, especially boys from disadvantaged backgrounds, falter and become disengaged. On present measurements, 84,000 pupils in one year made no progress or fell backwards in English between key stage 2 and key stage 3; 28,000 made no progress or fell backwards in maths; and 140,000 made no progress or fell backwards in science. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) has pointed out, those years are some of the most important in education, and it is a tragedy that thousands of children aged 14 have a reading age lower than 11. These young people are often on a conveyor belt to truancy, delinquency and unemployment. My hon. Friend has underlined that, whatever their failings, the current SATs have reinforced the need to focus extra attention on pupils from disadvantaged backgrounds who are falling behind. Will the Secretary of State therefore guarantee that, as changes are made, there will be a special focus on ensuring that we track and reverse under-achievement among the poorest?
	Ofsted clearly now has a more crucial role to play than ever. Does today's announcement mean that the Secretary of State will change the inspection regime brought in by the Education Act 2005? Will he now give Ofsted the remit and the resources necessary to conduct in-depth inspections to help underperforming schools improve? With regard to the expert group, will he give sympathetic consideration to recruiting the best head teachers from our highest-performing schools to that group to underpin a commitment to excellence?
	As well as concern about too much testing, there is concern about a lack of rigour in all national tests. The Secretary of State will, I am sure, know that one of the questions in the most recent key stage 3 science tests was, "What part of a rider's body does a riding hat protect?" and one of the questions in our GCSE science tests asked students whether we looked at the stars through a telescope or a microscope. Does he consider those questions evidence of sufficient rigour in the curriculum and, if not, what instructions has he given to the Qualifications and Curriculum Authority and the exams watchdog Ofqual to ensure that standards are high?
	The Secretary of State will be aware that concern about the national curriculum has meant that more and more high-performing schools are abandoning state exams and opting for qualifications such as the international general certificate of secondary education. Will he allow state schools to offer the IGCSE and have achievement in that exam count in their league tables?
	On the issue of new exams, the Secretary of State will know that the take-up of diplomas so far has been disappointing, with just 12,000 rather than the expected 50,000 pursuing these new qualifications. We want the exams to be a success, but, given how few high-performing schools are embracing the full diploma offer, will he take this opportunity to confirm that the A-level will now be safe beyond 2013?
	Over the past seven years, we have fallen behind as a country in every external measurement of educational performance. We have dropped from fourth to 14th in science, from seventh to 17th in literacy and eighth to 24th in mathematics. Those are OECD figures. We congratulate the Secretary of State on recognising that change is necessary. We hope that we can continue to work in a consensual fashion to push forward the case for reform, built around fewer and more rigorous tests, less bureaucracy, more freedom for professionals and a commitment to excellence for all, underpinned with a special focus on the most disadvantaged. Our children deserve no less.

Edward Balls: I am grateful for the hon. Gentleman's support, although I am somewhat surprised by his remarks. He did not seem to address any of the issues that I raised in my statement. He seemed almost to be responding to a different statement delivered by a different Secretary of State on a different subject. It was not a statement about A-levels or diplomas. The thing that I found odd about his response was that he did not tell us whether the Conservative party supported our decision to abolish key stage 3 tests at 14—yes or no. Nor did he tell us whether he supported our decision to introduce report cards—yes or no. However, he did support my clarity on the fact that at key stage 2, we will continue with external assessment. We will also make sure that we evaluate the pilots on single-level tests in a way that genuinely supports the best teaching and learning, and the progress of every child. We are not, at this stage, making a decision on whether to proceed with single-level tests; we will do so on the basis of proper evaluation. I am grateful for his support for our making those decisions in the right way.
	On key stage 3, I welcome the hon. Gentleman's saying that we should do more to focus on pupils who fall behind in years 7 and 8 of secondary school. That is precisely why I am today giving the expert group a remit to look into those issues. I welcome his support for that, too. Clearly, we want to ensure that Ofsted, our inspection regime, and our accountability regime more widely, focus on the issue of pupils who fall behind.
	What the hon. Gentleman did not tell us, in a conclusion that veered off towards the subjects of diplomas and A-levels, was whether he supports our decision to abolish key stage 3 tests. I know that the Leader of the Opposition has, in past interviews, said that the Conservative party wants to continue with tests at 14. I know that last week, the shadow Schools Minister, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), told the House of Commons in a debate:
	"The SATs that are most criticised...are the key stage 3 tests. However, those are probably the most important."—[ Official Report, Westminster Hall, 9 October 2008; Vol. 480, c. 176WH.]
	I understand that there will be a need for a period of reflection on those issues before the Conservatives' policy is decided, but I hope that when they reflect on our principles, they will conclude that the proposals that we are putting forward today are in fact the right way to take forward the learning of every child.
	I was also disappointed that the hon. Member for Surrey Heath (Michael Gove) did not tell us whether he supports our proposals for new report cards, but again I hope that when the Opposition Front Benchers have had the opportunity to reflect, they will decide to support those proposals, too. I can tell him that we will ensure rigour in our expert group.
	As for the hon. Gentleman's final remarks, I can make very clear commitments on the wider issues that he raised. I can make a very clear commitment: we will take forward our reform to ensure that education continues not just until the age of 16, but until 18 for every child, and not just some. We will ensure that every young person in our country has the choice of one of 17 diplomas, and the best chance to break out of the old two-tier divide between academic and vocational learning. We will ensure that every young person has a properly funded educational maintenance allowance. Those are three clear commitments, none of which the Opposition Front Benchers support. That—more so than anything that the hon. Gentleman said in response to my statement—tells us everything that we need to know about the modern Conservative party.

David Laws: I start by thanking the Secretary of State for advance sight of his statement. I welcome the Government's U-turn on the key stage 3 tests; it will be widely welcomed outside this place, and no doubt in his own household. I also welcome what I think was a U-turn from the Conservatives on the key stage 3 tests. Four or five days ago, they were telling us that they were committed to those tests. I think that the shadow Secretary of State said today that he was happy with the announcement that the Secretary of State made, although we await clarification of that.
	Outside this place, the key stage 3 tests have long been regarded by all parties involved in the education debate as a complete waste of time, expensive, inaccurate and unwanted, not only by parents but by schools and other players in the educational debate. We are very pleased that they have gone, because they are expensive without adding anything to the system.
	We support the Secretary of State's decision to keep the key stage 2 tests, which are vital for primary school accountability. He said that they should be externally marked. Will he clarify whether he is saying that he will always insist on full external marking, or is he still considering internal marking with external moderation?
	The Secretary of State has made one very welcome U-turn; may I urge him to make a number of others on similar issues? He said, I think, that single level tests were being axed at key stage 3, but that on key stage 2 the emerging evidence was encouraging. I should like to know what that emerging evidence is, since most of the people to whom I speak and most of the evidence that I am aware of is that those tests are a failure, that they would erode accountability at the primary level, and that they would institutionalise a testing factory farm in schools in an unwelcome way that runs directly counter to the other announcements today.
	May I ask the Secretary of State about one potentially important announcement that he made today, and discover whether it is as important as it looks? The Department's response to the Select Committee report indicated that it was sceptical about the random sampling across the school system of particular cohorts so that we could find out what was happening over time to standards, without those figures being distorted by teaching to the test or the dumbing down of examinations. What is the meaning of his statement today that he will introduce sample testing, presumably at key stage 3, and who will do it?
	If the Secretary of State is serious about introducing more sample testing to end the debate about standards in education, will he beef up the Ofqual that he announced a year ago and make it a genuine educational standards authority that will have credibility in the education standards debate, which it does not possess at present? Will he also consider the future of AS-level examinations and whether they are necessary? Will he consider the systems of targets that are used alongside Government tests, which often have distortive impacts, particularly on the borderline between level 4 and level 3 and between C grades and D grades?
	Finally, on the shambles of the key stage 2 and 3 tests in 2008, may we have an update not only on the number of papers that have yet to be marked, but on the appeals situation? I understand from the Qualifications and Curriculum Authority that appeals are up 50 to 100 per cent. on last year, which indicates that the confidence that the right hon. Gentleman displayed in his statement of 22 July that marking remains of high quality is not shared by many schools across the country. What are the latest statistics on appeals, and is he as confident about marking quality as he was a number of months ago?
	The changes announced today are long overdue and will be welcomed by people right across the political spectrum, from extreme left to extreme right. I hope that this is the first of a number of major changes that can restore credibility to the standards debate in education and ensure that we strike the right balance between school accountability and genuine freedom and liberalisation.

Edward Balls: I welcome the hon. Gentleman's support for our reforms and proposals. I found his response comprehensible and I agreed with almost all of it. I was glad that I was not the only person in the House to be totally confused by the remarks of the shadow Schools Secretary. We know that the hon. Member for Surrey Heath (Michael Gove) likes to read out a prepared text, but as I had given him mine an hour before, one would think that he could have written a slightly more comprehensible one.  [Interruption.] Yes, he would almost certainly have failed to get to level 4 at key stage 2 in comprehension with that reply.
	We will continue with externally marked key stage 2 tests. We are not proposing a move towards external moderation but internal marking. That is not the approach that we are taking at key stage 2, 3 or 1.
	I will share with the hon. Member for Yeovil (Mr. Laws) the emerging evidence from the evaluations of the single-level tests. As I said, the evaluation at key stage 3 shows that the single-level test approach does not work. It seems that it is not possible to have an effective test that crosses the primary-secondary school divide and the divide between key stage 2 and key stage 3. That is why, on advice, we are ending the pilot. However, at key stage 2 the early results are encouraging. If we can have a testing regime in primary schools consistent with external marking and proper objectivity, which allows testing to be set more to meet the level of individual children on the basis of teacher judgment, that would be a good thing, but we will not do so until there has been proper scrutiny of those pilots. I assure the hon. Gentleman that we will not rush to hasty judgments.
	Sampling is an important issue. As I said when I set out the principles, the testing, assessment and accountability regime plays different roles. We want to ensure that every parent has an objective view on the progress of their child and the performance of their school. Sampling clearly cannot deliver either of those, but it can allow us to check the progress of the whole school system. Because GCSEs give us that external check on the performance of the school, and because individual progress is assessed by teachers in years 7, 8 and 9, at key stage 3 we can use a sample to assess the system as a whole, but to use a sample at key stage 2 would take away from parents that objective evidence on the performance of an individual school. Sampling is a good thing where it works to meet an objective, and that is why we will ask the expert group to advise us on how to do that effectively at age 14 in our schools.
	I made no announcements today about AS-levels or qualifications after 16. That will need to be for another day and another discussion. But to give an update on progress over the summer, schools now have 99.9 per cent. of results and scripts. The appeal process is moving ahead.

Edward Balls: We will need to pay particular attention to two particular categories of schools. One is middle schools, where pupils leave at 14, and the second is those that have opened as new schools, in which, for the next five years, pupils, as they move through the years, will not have done a year 11 externally marked test. We particularly asked the expert group to consider that issue and advise us on it. We need to ensure, consistent with the right decisions that we have made about key stage 3, that we can provide parents with enough information and certainty about the performance of those schools. This is a particular issue that we will now consider on the basis of the expert group's advice, and I will ensure that my hon. Friend is closely in touch with that work.

Edward Balls: I am relieved to say that that is not an exam that I set, mark or moderate. Lord Sutherland is taking evidence as part of his inquiry. He will set out his conclusions in due course and we will ensure that every lesson is learnt from what happened during the last two years in the management of that contract.

Edward Balls: Our intention is for the school report card to be for every secondary and primary school, and to take forward both cards at the same time. We will consult in the next few weeks and produce a detailed plan in November, at the time of the one-year-on update on our children's plan. We will have a formal consultation in advance of the White Paper in the spring. We will need to sort out a number of details, and I hope that there will be an opportunity for discussion and to hear the views of the Children, Schools and Families Committee and experts in the House.
	On the issue that my hon. Friend has raised, I should say that the school report card will be important to parents as a simple and comprehensive view of a school's performance, alongside Ofsted reports and the raw data on the school. We publish clearly information that is compiled by others into school league tables. That information, of course, will continue to be published in a simple and accessible form, so school league tables will continue to be compiled and parents will continue to look at them.
	However, we hope that alongside the Ofsted report and those tables, the school report card will give parents a more comprehensive view of the school's performance that takes into account not only standards for the average child at the school, but how every child is supported to learn—value added in respect of the school—and some of the broader issues that matter to the well-being of children in a school. The aim is to capture the idea of the 21st-century school in one report card, and I hope that we will be able to discuss it in more detail in due course.

Mr. Speaker: Order. I gently say to the Secretary of State that I appreciate his full replies, but perhaps they could be shorter. We have a limit on the main debate, and those replies will take time out of that limit.

Stewart Jackson: When the Secretary of State looks at the curriculum for the politics and government GCSE, he might want to consider the 1954 Crichel Down precedent, which established ministerial responsibility, because that is clearly something that is anathema to him given that we have still not had a proper apology from him for the debacle of last summer. How much faith can we put in any future testing regime when that is the case? Would he like to apologise to my constituents and to the head of Werrington primary school, Ben Wilding? The data on four children at that school have not been accounted for, and are still missing after four and a half months. Maths papers have gone back a second time for marking. That is lamentable. Even though they might be in that 0.1 per cent. it is not—

Edward Balls: I apologise to you, Mr. Speaker, for the length of my answers. I very much regret what has happened in the school in the hon. Gentleman's constituency. Two thirds of the ETS first-year payments have been returned—some £24 million. I was careful in my language when I made a statement in July on the basis of legal advice. If we had followed the advice of Opposition Members, the taxpayer would be substantially in deficit. That is the difference between responsible Government and irresponsible, posturing opposition.

Liz Blackman: Educational success is totally dependent on a child's ability to access the curriculum so I welcome the emphasis on catch-up in the early stages of key stage 3 with one-to-one support. Can my right hon. Friend assure parents that a similar emphasis will be placed on high-quality, stretching education for all pupils?

Edward Balls: We have looked carefully at the transition issues, and will continue to do so through the expert group. One proposal was that we should hold year 6 pupils back and make them do a further year in primary school, rather than letting them go to secondary school, if they had fallen behind. Surprisingly, that was not raised by the hon. Member for Surrey Heath (Michael Gove) in his response today. I do not know whether that it still the policy of the right hon. Member for Witney (Mr. Cameron). We will look very carefully at those issues, and we will ensure that there is a proper focus on pupil progress in years 7 and 8. However, holding 12 and 13-year-olds back in primary school would be totally the wrong thing to do.

Mark Pritchard: I beg to move,
	That leave be given to bring in a Bill to prohibit the breeding, selling, purchasing and keeping of primates as pets in the United Kingdom; and for connected purposes.
	It might come as a surprise to some Members of the House—and certainly to some members of the public—that it is currently not illegal to keep a primate as a pet. Such practices do not fit well with our so-called enlightened and modern society—a Britain that is supposed to have world renown as a nation of animal lovers. Keeping primates as pets is like something from Victorian times. It is outdated, and comes from a darker period for animal welfare in this country. That was a different age, in which very few data on the declining number of primates were available. Today there is little excuse for lack of knowledge or access to information.
	The Bill is about serious monkey business. It is estimated that up to 3,000 primates are currently being kept as pets in the United Kingdom. Many, although by no means all, are kept in cruel and cramped conditions. Whatever their captive conditions, these wild animals will always remain wild. These are animals that need large areas of vertical and horizontal space; they need certain room temperatures and humidity; they need long hours of natural sunlight; and they need a varied and balanced diet.
	There are many examples of rescued primates having been malnourished and fed completely inappropriate diets, which often cause medical conditions such as rickets, muscular waste, curved spines, brittle bones, major psychological and mental disorders, respiratory complications and tooth decay—the list is endless. One particular example is the case of Joey the monkey who was kept in a tiny wire cage for more than nine years, so that his neck was fused to his spine; but I am glad to say that he has now been rescued through the excellent work of the monkey sanctuary trust in Cornwall.
	Primates are extremely sociable animals. In the wild, they can live in colonies of up to 50 individuals and they sometimes occupy areas as large as 130 hectares per colony—not a 3-ft 2-in wire cage or a 6-ft 6-in shed in the back garden of a three-bedroom semi-detached house. Scientific evidence points to social, physical and behavioural suffering for primates kept as pets. Many owners fail to realise that many primates will live up to 40 years of age. Cheeta, the chimpanzee from the "Tarzan" movies, for example, recently celebrated his 76th birthday. I hope that some Members will support my campaign to get Cheeta an honorary Oscar so that he can highlight the cause and the plight of his cousins who do not swing on the lanyards, but are kept in wire cages. The Government, along with my own colleagues on the shadow DEFRA Front-Bench team, should act to put an end to this antiquated and cruel practice.
	Primates are the fathers of the forest, and the Prime Minister's new rainforest review will be meaningless without added protection for primates. I recognise that the Government are doing some good work in some areas, particularly in respect of the convention on international trade in endangered species of wild fauna and flora, known as CITES. However, it is inconsistent to talk about millennium development goals and the sustainability of ecosystems, habitats and forests when the great sowers of the seeds of the forests are themselves being eliminated and imprisoned in this country.
	I am not being alarmist when I use the word "eliminate", for as long as primates are snatched from the wild, that particular lineage will never be replaced: the gene pool is running dry. Each year, according to "Animal Issues", 32,000 wild caught primates are sold on the international market, and according to a recent global review of the world's primates, 48 per cent. of species face extinction. The World Conservation Union—or the International Union for Conservation of Nature—red list of threatened species suggests that 70 per cent. of primates in Asia are now endangered. The figure is 90 per cent. in Cambodia; 86 per cent. in Vietnam, 79 per cent. in China, and 84 per cent. in Indonesia. The statistics are alarming.
	I hope that the Government of Portugal will do more to stop the illegal trade of primates through the port of Lisbon. I also hope that the Democratic Republic of the Congo will stop the mainly illegal markets that take place in that country. It is a blight on the international reputation of those countries and a possible threat to their future eco-tourism—particularly that of the DRC—when they take so little action to deal with this issue.
	It is said that the world's forests are the lungs of the world. If that is true, primates are the alveoli—the tiny air sacs that give vocal life to the world's forests. I want to pay tribute today to some Governments who have taken action—the Governments of Holland, Germany, Italy, Denmark and Israel, who have already taken serious steps to restrict the keeping of primates as pets, many banning them altogether years ago, as in the case of Israel. The UK should shut off the demand for primates in this country and should take the lead, as it has on so many other issues such as climate change and CITES.
	According to the International Union for Conservation of Nature's red list of threatened species, 11 per cent. of the 634 recognised species and sub-species are critically endangered, 22 per cent. are endangered and 15 per cent. are vulnerable. Scientists noted in the study that the data constituted
	"probably the worst assessment for any group of species on record".
	That is a worrying and damning indictment of Government and, indeed, perhaps parliamentary inaction. Bouvier's red colobus, for example, may already be extinct: it has not been seen in the wild for 25 years, and we may never see one again.
	The causes of depopulation are many and varied, including loss of habitat, hunting for bushmeat, and disease. I appreciate that the United Kingdom Government's inability to deal with some of those issues is very limited, but the Government can and should take action to stop domestic pet owner demand in this country. Overwhelming evidence suggests that smuggling and the import of primates into the United Kingdom have a direct and adverse impact on wild populations. Government inaction, including the inaction of past Conservative Governments, also ignores the health risks that primates pose to public health: the inter-species transfer of diseases such as monkeypox—a form of smallpox—the herpes B virus, the Marburg virus and the serious flesh-eating disease Ebola.
	Primates pose a severe biodiversity and bio-disease risk. I hope that Her Majesty's Revenue and Customs will do far more; it currently has a pretty miserable record of intercepting the illegal import of primates which could be carriers of the diseases to which I have referred, and I hope the Minister will be able to ask about that. Is he confident that no serious emerging infectious disease is being hosted by one of the United Kingdom's pet primates?
	What action should be taken? First, let us phase out the keeping of primates as pets by 2012, introduce a registration system for all existing primate pet owners so that animal welfare standards can be monitored and inspections can be made, and not de-list tamarins, squirrel monkeys, woolly lemurs and owl monkeys under the Animal Welfare Act 2006: they need licences too.
	The Bill has cross-party support. We, as human beings, do not own this world; we are merely custodians for the generations that will follow us. We may have dominion over the world and its creatures, but we must also be good stewards of the natural world as much as of—as we shall hear in a moment—the material world.
	My final question is this: does the Minister think that, in modern Britain and with rapidly declining primate populations, allowing the trading of primates as pets is the right and the civilised thing to do, and can we, in all good conscience, allow it to continue?
	 Question put and agreed to.
	Bill ordered to be brought in by Mark Pritchard, Mr. Elliot Morley, Mr. Edward Vaizey, Michael Jabez Foster, Mr. Philip Hollobone, Mr. Stewart Jackson, Mr. Eric Martlew, David Taylor, Mr. Colin Breed and Mr. Eric Pickles.

Mr. Mark Pritchard accordingly presented a Bill to prohibit the breeding, selling, purchasing and keeping of primates as pets in the United Kingdom; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 17 October, and to be printed [Bill 152].

Andrew Pelling: rose—

Alistair Darling: I shall give way first to the shadow Chancellor, and then to the hon. Member for Croydon, Central (Mr. Pelling).

Alistair Darling: I had rather thought that the hon. Gentleman was now not insisting on that point, but he mentioned Bradford & Bingley. There comes a point with the special liquidity scheme when the Governor of the Bank of England has to form a judgment as to whether it is prudent to keep providing an institution with funds if he thinks that it will not get through.
	The hon. Gentleman will recall that Bradford & Bingley had difficulties in the summer and autumn. It became obvious—not just to the Bank of England but to us at the Treasury and to the FSA—that the question was whether it would fail on the weekend that it did fail or whether it could struggle through the following week. I took the view, as did the Governor and Lord Turner, that we should not take the risk of trying to run the bank through the week. The hon. Gentleman will know that it is much more difficult to resolve a problem when markets are open, but in any event the FSA came to the view on that particular Saturday—I forget the precise date in September—that the Bradford & Bingley no longer met its threshold conditions.
	There was never any disagreement between us. I think that there was an inevitability about the fact that Bradford & Bingley was getting into difficulties, but what we did was triggered by the FSA saying on that Saturday morning that it had looked at the matter and decided that the bank no longer met its threshold conditions and that it therefore could not take any deposits from the following Monday. That is why we had to take the action that we took.
	What happened with the Bradford & Bingley again demonstrates the use of the legislation that we have now, through the special provisions, and which we want to replicate in this Bill. It was possible at least to separate out the bank's branches which, as the hon. Gentleman will know, were sold to Abbey Santander. That safeguarded the interests of savers although, for reasons that I think that most people will understand, it was not possible to find a buyer for the remaining part of the bank.

Andrew Pelling: I thank the Chancellor for giving way, and my question has to do with the special resolution regime. He has said already that the US may follow the Government's lead on recapitalisation, but why has he set his mind against the idea of taking bad debts off the balance sheets, as America's troubled assets relief programme attempts to do? Will the special resolution regime still allow that capability to be used as a public policy tool if it is judged to be appropriate in the future?

Alistair Darling: The Americans have decided on an approach that is suited to the present position of American institutions. The special liquidity scheme does something similar, with the difference that, instead of the taxpayer taking on what might be called the toxic assets, in our system the risk stays with the banks. The scheme has worked quite well, and I announced last week that I had authorised support worth £200 billion.
	I think that the scheme is working, but I refer the hon. Gentleman to the point raised by the shadow Chancellor. In practice—and unfortunately we have had some practice over the past few months—there was no dispute among the three people who had to make the decisions in relation to Bradford and Bingley. It was quite obvious what we had to do, but the model that we have is based on the regulator—the FSA—finally saying that a bank has failed its threshold conditions. Only it can decide that, and that is right, although the Bill makes it clear that there has to be consultation.
	There are three options for dealing with a failed bank. We can transfer it to a private sector purchaser or, so that we can decide how best to proceed, to a publicly controlled bridge bank. Also, if necessary, there is temporary ownership as a backstop. There are also powers in part 1—clauses 42 and 11—to allow for partial transfers, as in the case of Bradford and Bingley. That gives the necessary flexibility.

George Osborne: My hon. Friend raises an interesting point that the House will have to deal with in the next year, which is that we have basically created a revenue regime that assumes successful and profitable financial services. We rely heavily on corporation tax receipts from the City and we rely on income tax receipts from wealthy individuals, and as well as coming into this economic downturn with a structural budget deficit because tax revenues were not matching spending, we face another kind of structural deficit, which is that the way that we have collected taxes means that the revenue streams that we have depended on and that the Treasury has put in its long-term forecasts, will, I suspect, not be there. That will be the case not simply through this current economic downturn, when tax receipts fall and spending rises, as always happens in an economic downturn, but for the foreseeable future. The cash cow of the City will not be there and that will pose some difficult questions for the Chancellor of the Exchequer and perhaps those who come after him. That is something that we could debate on another occasion, but my hon. Friend makes a good point.
	I want now to go through some of the details of the legislation, as the Chancellor did, and to deal with the central measure, the special resolution regime. I positively welcome the fact that the Government are giving themselves powers, or what they call tools, other than nationalisation or part-nationalisation, to deal with a bank failure. There are the new powers to create a bridge bank or facilitate a private sector purchase, which again the Government rightly say is the one solution most likely to maintain financial stability, provide continuity of banking services and protect public funds. Of course, there are also the important powers—extraordinarily, the current law did not allow us to do this—to put a bank into insolvency. It is correct that those matters should be addressed in this legislation.
	It is important for the House to understand that, when we are discussing the special resolution regime, we are talking about extraordinary powers to seize private property and to dismiss privately entered into contracts and loans, potentially wiping out the savings and investments of millions of small shareholders who have ordinary shares in banks, many of whom are the employees of those banks, working in the bank branches and the call centres. We can only contemplate the use of such powers because of the central role that banks and financial institutions play in our economy, and that justifies not just the bail-out yesterday, paid for by the taxpayer, but the extraordinary powers that the Bill grants.
	However, much rests on the circumstances in which the new powers would be exercised, and in particular there is an interesting debate to be had over the power to set aside the claims of creditors. We should remember that in all the different actions that the Chancellor has taken—Northern Rock and Bradford & Bingley, and the action that he took yesterday—to my knowledge, he has never set aside the legal claims of the majority of the creditors. In what circumstances would he in future wipe out the creditors? What would the threat be that would force him to do that? The very fact that the threat is on the face of the Bill is something that, for example, the banking industry is concerned about. In commenting on the Bill, the British Bankers' Association puts it like this:
	"without appropriate safeguards, interference in creditor rights would undermine the competitiveness of UK financial services firms and inflict serious damage on the role of London as an international financial centre."
	As I say, there must always be a balance here between the interests of the taxpayer, protecting the stability of the system, and maintaining the competitiveness of the City of London. But if there is concern about the powers—they were not used in the extraordinary circumstances of recent weeks—it might be good to hear from the Government about the kind of scenario in which they might be used, and that might be set out in the code of conduct, which I am glad that the Chancellor promised we would be able to have sight of at some point in Committee before we discussed the particular issues around the special resolution regime.

George Osborne: My right hon. Friend is absolutely right; that is a key part of prevention. In a short while, I shall propose extra powers that I think the Bank of England should have and a new relationship between the Bank and the Financial Services Authority which would help ensure that what he suggests is done on a more systematic basis.

George Osborne: The hon. Gentleman is slightly confusing the attack point that he wants to make; he is roping in my hon. Friend the Member for Chichester (Mr. Tyrie), and that has not been the main line that No. 10 has taken—this does not apply to the Treasury, to be fair—in briefing against me for the past week while we have been trying to offer some cross-party support for what the Prime Minister has been doing.  [Interruption.] Let me make it absolutely clear to the hon. Gentleman: I did not, and neither did my colleagues on the Front Bench, take any private briefing from the Bank of England and repeat it on any television programme or in any newspaper article. The issue of recapitalisation, or the possibility of it, had been discussed openly in the press for some time; Martin Wolf had written a fairly convincing piece about it in the  Financial Times the previous week. More to the point, Dominique Strauss-Kahn, the head of the International Monetary Fund, had said, also in the  Financial Times, that recapitalisation was the approach that European Governments should be considering, rather than the TARP—troubled assets relief programme—approach put forward by the United States.
	I know that the Prime Minister now casts himself in the roles of Churchill and Roosevelt in dealing with this crisis, but the idea that somehow recapitalisation was not being discussed across the world is somewhat bizarre. By the way, I met all the different members of the tripartite committee that week; the idea that I took a private briefing and repeated it is simply not true. I give the hon. Gentleman and the House that assurance—not, I suspect, that that will stop the Prime Minister's boot boys from doing their job.
	Before I move on, I want to touch on one point about the special resolution regime—the trigger. As the Chancellor said when I intervened on him, I do not intend to insist on this point, but I draw the House's attention to who exactly pulls the trigger. No one doubts that the FSA should pull it, but there is some disagreement about whether the Bank of England should also have access to the trigger. The Governor of the Bank of England told the Treasury Committee that he felt that he should have that power. We were convinced by his arguments to the Committee. We have spoken to regulators and central bank governors in other countries and we know that they can see an argument for a central bank having such a trigger. All I say to the Chancellor is that although we will not insist on the point—we will not try to get the House of Lords to insert it into the Bill—we reserve the right to return to the issue later. Although between its first report in January and its second report in September, the Treasury Committee amended its view on whether the Bank of England should have the explicit trigger, it said that the Bank should have explicit powers in primary legislation to recommend the pulling of the trigger to the FSA; such a provision, however, is not in the Bill.
	Moving on to part 4 of the Bill, I welcome the increase in the deposit protection limit to £50,000, and we are glad that the Government have agreed to it. It would be interesting to hear whether there are any further proposals on that, given that some Governments around the world are still increasing their deposit protection limits and issuing general guarantees. The key thing is that people have rapid access to their money, and it will be interesting to know when the FSA will introduce its proposals.
	Although it is not directly relevant to the Bill, with your indulgence, Madam Deputy Speaker, I ask the Chancellor—or whoever from the Treasury will reply in this debate—to tell us how he intends to deal with Equitable Life, which is another compensation issue that arose from a failure of regulation. We have the parliamentary ombudsman's report and we are awaiting the Government's reply. Most people would regard it as somewhat bizarre that the Government can compensate people—quite rightly—for losses in foreign banks because of regulatory failures in Iceland, but cannot compensate people for losses caused by regulatory failures in the UK in relation to Equitable Life. It would be interesting to know when the Government propose to deal with that.
	I shall touch briefly on clause 156 and pre-funded compensation schemes. I know that the Government are giving themselves the power to have a pre-funded scheme, but the Chancellor knows, as he acknowledged, that the industry is nervous about that. The Association of British Insurers says that it would impose a heavy cost on the financial services industry that is undesirable given the current economic weakness. In what circumstances would the Chancellor consider introducing a pre-funded scheme? Would there be some test about how strong the industry had become? Such a test is not likely to be passed for a considerable period.
	On the new structures and procedures for the Bank of England, more than two years ago, we proposed that appointments to the Monetary Policy Committee should be more transparent and made in the way that other Government appointments are. I am glad that there has been some movement in that direction, but we could do more to entrench the independence of the Bank. Recent events have shown that there is no shortage of politicians who are willing to jump up when times get difficult and call for the Bank's independence to be suspended—indeed, the hon. Member for Twickenham (Dr. Cable) was one of them—but it would be more serious if the Chancellor or Prime Minister of the day was tempted to use the power to reappoint the Governor for political purposes. Whether it was intentional or not—we have our own views on that—we have been through the reappointment of Eddie George and Mervyn King, and in both cases the decision became somewhat charged. Our proposal is that, rather like the European Central Bank and other central banks, we should move the Governor to a single, non-renewable term so that there is no question of independence being challenged by a reappointment.

George Osborne: I absolutely would not allow the Bank of England's remit to be changed in a crisis. There is no point having an independent central bank if at the moment we get any kind of trouble, we suspend the remit or change the target. No independent central bank in the world would last if that were the case. The target set by the Government includes not just an inflation target but a responsibility on financial stability, and as last week's decision by the Governor demonstrated, he is perfectly capable of taking into consideration broader issues of financial stability as well as his inflation target remit. Frankly, it would not be sensible to suspend the independence of the Bank. The very concept of suspending independence is almost a contradiction in terms. It would not be independent.

Andrew Pelling: Is not the fact that no one was responsible for dealing with asset price inflation fundamental to the crisis that we have faced? The easing of credit during the dotcom boom and the previous Asian financial crisis meant that we stoked up the problems that have had such severe consequences. It is only by imposing those additional responsibilities on the authorities that such crises can be prevented in future.

John McFall: Thank you, Madam Deputy Speaker, for giving me the opportunity to contribute to the debate. I welcome the introduction of the Bill, and the cross-party approach to the measures to deal with the banking crisis. The Treasury Committee has led the way in forging a cross-party approach to the issues relating to banking that have arisen since the run on Northern Rock in September 2007. We have produced two reports on the legislative changes that we identified as arising from the experience of Northern Rock. One, "The run on the Rock", was published in January this year. The other, entitled "Banking Reform", was published in September.
	There are clear signs in the Bill that our reports have helped to shape it, as it stands, although I suggest that there are still areas for improvement during its parliamentary stages. I want to look at four main areas today. The first is the immediate context, and how that affects our approach to the Bill. The second is the special resolution regime and the bank insolvency provisions. The third is depositor protection, and the fourth is the governance of the Bank of England.
	On the immediate context and how it affects our approach to the Bill, it hardly needs to be said that a great deal has changed since we published our report in mid-September. However, recent events have reinforced the point that we made in both our reports that banks are special institutions with a special role in the economy.
	The Treasury Committee returned last week from a visit to Japan, a country whose Government massively, if belatedly, recapitalised its banks in response to the crisis that it faced in the 1990s. During our visit, it became obvious to us that the role of the banks in the economy was equivalent to the circulation of blood in the body. If the blood stops flowing, there is a thrombosis, and that is what we have seen in the banking system in this country. The recent massive transfusion of capital into the British banking system demonstrates that the Government have learned many of the lessons that were emphasised to us during our visit to Japan, most notably the need for swift and decisive action and, secondly, the need to attach conditions to recapitalisation relating to lending and the running of banks, making it clear that the days of business as usual for bankers are over.
	The capacity of the Government, together with the Bank of England and the Financial Services Authority, to act effectively in the current crisis does not mean that new legislation is any less necessary. In fact, one of the key lessons that we learned in Japan was the difficulty of returning to what were described as "normal conditions" in the banking sector. The new legislation will serve as a crucial pillar of the public sector approach to banking in what we eventually consider to be normal times.
	The second item on which I want to focus is the special resolution regime and the bank insolvency provisions. The Bill provides a welcome return for the Bank of England to the heart of financial stability—something that the Treasury Committee has been calling for since we produced our report, "The run on the Rock". In that January report, we argued that the authorities should design bridge-bank and third-party transfer arrangements for struggling banks in order to provide alternatives to the nationalisations that we saw with Northern Rock and others more recently. I welcome the fact that the Government have accepted our recommendation and devised a special resolution regime.
	The Bill confirms that the Financial Services Authority should pull the trigger, placing a financial institution into that special resolution regime. Our September report on banking reform agreed with that position, recognising that there should be a clear line of responsibility, but we also recognised the need for the Bank of England to have a check on the process, with specific legislative provision to enable the Bank formally to recommend that the FSA place an institution into the special resolution regime. That came out of our experience with Northern Rock, when we decided that there should be no hiding place for the Bank of England, the FSA or the tripartite authority. Records should be made in public immediately or later on. We suggested that such a check would focus minds in the Bank and the FSA, ensuring that every "i" was dotted and every "t" crossed in the regulatory process.
	I accept that now is not the time to let further banks fail in the sense of their becoming insolvent. Any such bank failure would currently represent a systemic risk to the financial system, further undermining the already fragile confidence in the banking system. However, in the longer term, it is important to have a specific insolvency regime for banks and the Bill provides for that.

John McFall: We have not specifically done so, but if the right hon. Gentleman is asking for my opinion, I do not think that there should be a limit at the moment. I go back to my point that the banking system is the blood circulating around the economy, which is what makes it so important in securing financial stability. Once that stability is established, we can look at other issues later.
	The Treasury Committee also considered depositor protection and we concluded in our January report that such protection afforded by the Financial Services Compensation Scheme was a mess: it was complicated, confusing and did little to instil confidence among savers. We took a fairly relaxed view about the level of the compensation limit and we saw little reason to increase it from £35,000 to £50,000. We believed that more than 80 per cent. of deposits were saved, although not deposits by value. The goalposts have moved considerably since then with other countries unilaterally increasing their protection—in some cases, to 100 per cent. of deposits, as we saw with the Republic of Ireland. It is therefore sensible for the FSA to move into line with our peers in order to prevent the danger of drainage of deposits from UK banks.
	Even more important to our Committee was the speed of payout. The Financial Services Compensation Scheme website refers to recipients of compensation having to wait potentially months for access to their funds. That is simply not good enough, so we urge the Government to stand firm on the tough, seven-day deadline for processing compensation. In fact, the real test of the FSCS will be whether it can deal with the fallout from the Icelandic banks in a speedy manner.
	An important precursor to speedy payout is that the relevant data are to hand. On our visit to Japan, we saw that banks were required to have frequently updated depositor information available in a common format for the use of the deposit protection institution. I know that the banks here are reluctant to do the same; they say that it will be preposterously costly, but at least one bank is able to provide such information in the UK—the Abbey bank. In its submission to the Treasury Committee, it told us that it was already doing it. If Abbey can do it, why cannot other banks do the same? That is absolutely necessary if the public are to have the confidence in the banking system that they need. The Government need to ensure that similar arrangements are in place across all banks in the UK.
	Other concerns that we raised about the FSCS were the complexities of protection by bank, rather than brand, and the coverage of deposits held in foreign-owned banks. The recent confusion over Icesave deposit protection underlines the point. For deposit protection to be of use, it must be simple and well understood.
	Our Committee continues to see merit in a pre-funded compensation scheme whereby banks contribute more in boom times than in bust times. When the hon. Member for Sevenoaks (Mr. Fallon) and I visited Washington last December, we were told by the American Institute of Banking that that was a necessity. It is important, therefore, to make preparations now for the introduction of a pre-funding scheme in readiness for the next financial crisis, although we hope that it will not happen. However, I accept that now would not be the most opportune time for the banks to start contributing to such a scheme: pre-funding would be a medium to long-term innovation, to commence only once banks were better capitalised.
	Much of the Committee's report last month focused on the governance of the Bank of England. It is disappointing to note that there is little sign, as the Bill stands, that account is being taken of our recommendations—although, in fairness to the Government, I must add that they have been faced with a tight timetable. I hope that the Minister who replies today will be able to indicate that they will give careful consideration to our proposals.
	Let me highlight two important concerns about the Bill. First, its proposals relating to the financial stability committee are unsatisfactory. The committee is to have a non-executive majority and a largely advisory and monitoring role, but is to be chaired by the Governor. In our report, we argued that the FSC should be established as an executive body, completely distinct from the court and with a status comparable to that of the Monetary Policy Committee.
	Secondly, we are not convinced that the general financial stability objective currently proposed for the Bank of England is properly calibrated to its actual functions. As we said in our recent report,
	"There is no consensus about what financial stability means, how it should be measured and how the balance should be struck between the pursuit of a financial stability objective and other public policy objectives. There is no indication that a new statutory objective for the Bank of England would be accompanied by matching objectives for the Financial Services Authority and the Treasury. Above all, the Bank of England, while being endowed with certain financial stability functions and powers, is not being granted a coherent set of instruments in order to influence financial stability."
	We proposed two functional objectives rather than one general objective. That is one respect among many in which I hope that a good and well-timed Bill will become even better as it passes through the House.
	At the beginning of his speech, the Chancellor said that he would work constructively with others. As he knows, ours is a cross-party Committee. We worked for 12 months on proposals on which we have agreed, and I think that they are worthy of further consideration. We need a strengthening of the Bank of England, and an enhancement of the status of the financial stability committee to make it commensurate with that of the Monetary Policy Committee. We need to ensure that the tripartite authority does not become a sleepy backwater in normal circumstances; it must be constantly alert, and financial stability must be one of its key aims. We must also develop robust protection for depositors, because if that is not achieved, public confidence in the banking system will be undermined.
	I bring those constructive comments—developed over 12 months on a cross-party basis—to the Chancellor's attention for further consideration in Committee, and I wish the Bill well.

Vincent Cable: Today's debate is a little surreal. Although we are still in the middle of an enormous crisis, the Bill deals only with certain parts of it, albeit in a sensible and helpful way. I think we have exhausted "burning house" analogies, so let me produce another analogy: we are still experiencing the shock of a major tsunami wave. Bodies are still being fished from the waters and people are still being rescued, yet here we are debating how to set up a tsunami detection scheme and rebuild developments.
	That sense of reality was captured, to an extent, in the closing paragraph of the House of Commons note, in which someone beavering away in the House's research department wrote, rather sadly, "It is a measure of the pace of events that reaction to the Bill's publication has been virtually drowned by other events." It merited not a single mention in any of the serious newspapers. We are dealing with something which, although important, is in a sense not directly connected with the massive events that have been unfolding.
	Many of the important issues that are tied up with the banking rescue scheme and all that swills around it are not touched on here, directly or indirectly. The Bill clearly not does affect the principle of the lender-of-last-resort facility, although, as the Chancellor pointed out, it extends that principle to building societies. The key provisions of the rescue in terms of inter-bank lending guarantees are enormously important, but I understand that they are not directly affected by the Bill either. It does not deal with the way in which nationalised banks will operate, with the issue of the shadow banking system—which is the source of many of our difficulties—and how it should be regulated in future, or with the issues of competition policy and the role of the clearing system, raised several years ago in the Cruickshank report.
	Although I do not dispute the importance of the Bill's provisions, they deal only partially with the problems that we are experiencing. Arguably the most important, or second most important, part of the Bill relates to deposit protection, but over the last few weeks the deposit protection system has been overwhelmed and, in practice, it has become largely irrelevant to the restoring of confidence and stability.
	I had intended to discuss what are tricky and important issues in a non-partisan way, but I was provoked by the hon. Member for Tatton (Mr. Osborne). I do not propose to respond to his comments on the Bank of England, although I am perfectly happy to defend my position, and will continue to do so for as long as the crisis continues. I also acknowledge that he made some sensible comments, with many of which I agreed, particularly his comments about Equitable Life. However, it is a bit childish for those who aspire to be shadow Chancellor merely to rewrite history in such a blatant way.
	I was especially fascinated by the hon. Gentleman's account of how the Conservatives warned the Labour Government for years about the problems of personal debt. We are living through what I suppose is the economic equivalent of the Iraq war. I am sure that dossiers will be produced recording who said what when—and Conservative warnings about the emerging household debt problem are very thin on the ground.
	I remember having exchanges on the subject with the then Chancellor, now the Prime Minister, back in 2003-04. It became quite a hot issue, although I do not recall the Conservatives' contributing to the debate in any way. What they did do, although the shadow Chancellor may have forgotten, was set up a commission to examine debt problems, led by someone called—I think—Lord Griffiths. Its report, which I read, made it clear that there was no such thing as a general household debt problem. There was a debt problem relating to a relatively small number of high and low-income individuals with credit cards, and its recommendations were confined to that very narrow issue. There were no policy prescriptions relating to what was an emerging problem.
	At the risk of being immodest, I recall that, at the same time, my colleagues and I produced a 10-point debt plan, which dealt with the problem exhaustively and in some detail. It has clearly been raided for ideas, particularly in what the shadow Chancellor has called Conservative ideas about how to improve regulation of the banking system. He mentioned two quite distinct ideas, which merged into one somehow, that it was important for future Governments to take on board. One related to asset prices. The Chancellor may recall exchanges between Members on our Benches and his, back in 2003-04, about the genuinely tricky problems of dealing with those prices, and the possibility of incorporating house prices in the Bank of England's remit in measuring inflation. Again, I do not recall the Conservatives making any contribution whatever to the debate until today; the issue simply disappeared.
	More importantly, there is the very good idea—which I am delighted the Conservatives have taken up, despite the fact that they have called it a Conservative idea—of counter-cyclical management of the capital adequacy of banks. That idea has been in circulation for some time; it has been well written up by Persaud and Charles Goodhart and others. If the hon. Member for Tatton re-reads my 2004 debt plan, he will see it all described in there, four years before it became a Conservative idea. I think we might now have had enough of putting all this on the record.

Kenneth Clarke: Of course. The primary responsibility lies with the banks—I agree with that—but we do not leave the fate of the nation entirely in the hands of the banks, for good and obvious reasons. We therefore have a regulator and regulations with which the banks are meant to conform. They had a silent regulator who saw nothing wrong with what was happening and the Government presided above them, taking credit for the boom conditions that were breaking out.
	In my day, regulation was carried out wholly by the Bank of England. I do not think that we will ever go back to that, but it worked rather well. We had one bank that went bust—Barings—and I think that might have been why the present Prime Minister decided to change the regulatory arrangements. I have never quite worked out why he wanted to change them, but there is no protection against a deliberate fraud when the management of the bank are ignorant of what is being done in Singapore by a fraudulent employee.
	The Bank intimately knew the banking system and took its regulatory processes extremely seriously. The only explanation that I have heard from the then Chancellor's friends is that he thought that he would make the Bank too powerful if he made it independent on monetary policy while allowing it to keep its regulatory duties. I do not understand that, but he set up the new arrangement and so far, plainly, it has not worked.
	The Bill tries to address that problem and that is welcome, so far as it goes. At last, a statutory footing is at least given to the Bank of England's responsibility for financial stability. That is a very vague phrase and giving the role a statutory form does not alter present practice, although it gives a vague overall responsibility to the Bank, which is also given statutory immunity when it exercises that responsibility. That is all well and good, but the Bill also gives the Bank a responsibility to execute the new regime—the special resolution regime—in which alternative paths can be followed to step in when a bank fails to ensure that it does not threaten the system and is kept trading. That is going on now.
	Although the Bank is given a role in the regime, whether the regime is triggered is dependent on the opinion of the FSA. The Chancellor has said that the system works quite well and that the system set up in the 1998 legislation has led to a clear division of responsibilities between the various players. I do not believe that it has. I have not been intimate to the discussions but along with 60 million others I can see with the evidence of my eyes that the system has not worked at all. I can see that when I read the newspapers and could have seen it in my bank balance had I happened to have had a at-risk deposit with an Icelandic bank—I have not been so unfortunate.
	If we go back to the example of Northern Rock, it was quite obvious at the time that the three parties to the tripartite arrangement did not agree. They were shovelling blame on to each other at various times and had totally different approaches to what exactly to do in the short term. I said this at the time, so I shall not repeat it too much, but in the middle of it all the Government did not have the first idea of what to do. Now, they are taking the credit for taking the lead in solving the global crisis—that is, in how to deal with the insolvent banks.

Kenneth Clarke: I am sorry, but I do not have the time.
	Other features of the Bill prompt the question of whether things are really moving. The Bank can now access the information that it needs for its role from the banking system, but it has to get all that information from the FSA—the FSA is given the power to share information with the Bank, and it is astonishing that it has not had that power for the past 10 years. We are putting in place a potential shambles, which a new Government will have to deal.
	I have no time to cover any other major points, but I want to conclude with one of them. We are dealing with the part-nationalisation of banks and we are in the extraordinary situation where we are about to take into public ownership a substantial part of the banking system. Ministers should therefore explain on what basis the Government will conduct their relationship with part-nationalised banks. My hon. Friend the Member for Chichester (Mr. Tyrie) raised that point earlier.
	Yesterday, we heard vague remarks about an arm's length arrangement for managing the shareholding and appointing the directors. There are serious worries about how we will work with nationalised banks, and that is why the taxpayer lost £2 billion in the markets yesterday. The only banks that went down on the markets were those that had been given the privilege of a Government investment. Why? The Government have not really explained why they have made such a move.
	The Government will appoint directors, which they did not seem to be thinking of doing last week when they first outlined their proposals. They will take ordinary shares, not just non-voting preference shares, as we were first told. There are also astonishing apparent targets for levels of mortgage lending and small business borrowing, which are quite inappropriate and will distort the markets if they are imposed. There is the whole question of why Lloyds TSB is still taking over HBOS, which would never have been permitted under the previous competition rules. Apparently, now that the bank is publicly owned it does not matter that it will have a dominant market share that two private banks would not have been allowed to amalgamate to obtain.
	Will the Government have a view on jobs in Scotland when the banks are rationalising their arrangements? Will the Government have a view on a bit of pork-barrel lending in the run-up to the election? They have to satisfy us that that is not true, but they cannot tell us what the mechanisms will be to prevent such activity.
	There are serious problems with the Bill. We are supporting it on an all-party basis because there is a pistol pointed at the nation's head and these powers are required. The Government will need to answer more questions, including questions about their record, before we are happy.

Frank Dobson: It says that the directors were as daft as brushes, but we knew that already, before the right hon. Gentleman asked his question.
	We have also seen, as a result of deregulation, the development of hedge funds, the increased involvement of private equity and the further promotion of tax havens so that rich people can get out of paying tax. If there is to be a new Bretton Woods agreement, I hope that it will clamp down on the minor tax havens around the world that have allowed rich people to rob everyone else.
	The banks have carried out what they portrayed as sophisticated financial transactions. Time and again, their representatives went on television and radio and gave the impression that what they were doing was too complex for the average viewer or listener to comprehend its wonders. They were constantly announcing new products—ever more obscure and nearly always involving debt piled on debt. Those products were all dependent on inter-bank transactions so complex that several members of the boards of directors of the companies involved now say that they did not understand what was going on. Apparently the only thing that they understood was the whacking great cheque that came in at the end of each year to thank them for not understanding what their banks were doing. They apparently could not distinguish between assets and liabilities, and a banker who cannot do that has not got to first base in banking.
	We have also had things like off-balance sheet transactions, and so on. There has been a feeling recently that the problem really had to with mortgages extended to a few badly off individuals, but in fact most of it springs from what might be described as the wholesale, rather than the retail, end of the business, and from transactions between one bank and another.
	I had better move on from talking just about the banks, because then we have the auditors. There are supposed to be auditors, but what were they doing? What were the auditors of Northern Rock, Bradford & Bingley and the Royal Bank of Scotland doing? They were clearly not doing their job, but they were paid a fortune for not spotting that there was anything wrong. We need a regulatory system that will do something about that. Anyone who has been damaged by the auditors' failure should get ready to mount a class action and sue them. The auditors ought not to be allowed to fail, to let people down and cause them to lose money.
	Then there are the rating agencies. Until about six months ago, a chap from Standard & Poor would come on television and radio and lay down the law to the rest of us about the wonders and risks of this, that and the other. Now we discover that the rating agencies were giving AAA ratings to pieces of paper that were not worthless—they were worse than worthless. That is what the rating agencies were doing, so we need new and tough regulation. I believe that the regulations need to be laid down by law that is passed by this House. I do not think we can leave the determination of the regulations to the regulators. Their job should be to enforce rules, not make them up.
	As we all know, the major problem at the moment is that the banks do not trust one another. The deliberate obscurity of their accounts means that some cannot fathom even the extent of their own exposure, let alone that of other banks. If the banks cannot trust one another, there is no reason why the British people should trust them.
	Some of us have talked in the past about tougher regulation of the City of London, but we have been told, "Oh, you mustn't over-regulate, it would inhibit innovation." Well, we can see where innovation has got us, but the Spanish banking industry, which is not immune to the world's problems and which has what might be described as a little local difficulty over its own housing situation, did not get involved in US sub-prime mortgages. That is because the Spanish banking laws—what might be described as the new Spanish customs—prevented them from doing so. In fact, Spanish banks were subject to the sort of counter-cyclical regime described by the hon. Member for Twickenham (Dr. Cable), and that was because there were regulations in place. No one can say that those regulations stifled initiative: if they had, the useless people running British banks and building societies would not have seen them taken over by the Banco Santander. That bank was not restricted by any of the regulations, even though the Tories normally used to call them "stifling" when some of us advocated them.
	If regulations had stifled some of the enterprise that we have seen, I frankly believe that that would have been all to the good. Some of that enterprise—and its "new products"—has been the cause of all the problems that we now face, and is the sort of enterprise that we ought to stifle.
	I come now to pay and bonuses. Even without the bonuses, the pay of some fat cats in the banking industry is at ludicrous levels. Barts hospital is in the City of London. If we asked people in this country in an opinion poll who should be paid more, a cardiac or cancer surgeon at Barts hospital or someone running a bank, I think that the ones doing the operations would probably get the nod.
	As for bonuses, why did those overpaid people need them? Most people do their jobs to the best of their ability for a rate of pay. Why do bankers need bonuses in order to put their backs into their work? Surgeons and teachers do not get bonuses. Firefighters, police and research scientists work properly without bonuses, so what is wrong with the bankers? They are obviously so ethically degenerate that they cannot work without getting a bonus. Most of them are a deplorable lot of people, so why should they get a bonus at all?
	They certainly should not get bonuses that are based on short-term targets and handed over long before the real consequences of their decisions become known. I want to put a suggestion to my hon. Friend the Economic Secretary, who is on the Front Bench at the moment, and to the Chancellor. It is that any bank receiving public money should be treated as part of the public sector, with public sector pay and conditions applying. On a bad day, I think that bankers' pay should be determined by the Low Pay Commission.
	We all know now the long-term consequences of the scandalous and ridiculous activity in the banking industry. The failures of the banking industry start off by causing a run on share prices. Then the hysterics in stock exchanges around the world drag prices down even further for fear of a recession which everyone agrees has been caused by the banking failures in the first place.
	Of course, the share price falls—I take the  Financial Times as evidence for this—have been worst among those firms and industries most popular with hedge funds and least where there has been no hedge fund involvement. As various parts of the finance industry try to sort out their debts and assets, the private equity buy-outs based on heavy borrowing are becoming yet more heavily affected. That is what happens when deregulated, free-market, profiteering people get us into a mess.
	It seems to me that there is every possibility that we will go into a recession, so I ask everyone to look forward to how we should deal with it. We can do no better than look at the works of that great economist John Maynard Keynes, who started getting things right in 1920. It took the politicians about 15 years before they got a grip of what he was saying and started doing something about it. He advocated investment, which increased employment by means which at the same time increased our stock of useful wealth. He pointed out that, if a recession is coming, that is the last time in a cycle one should try to reduce spending because if we all stopped spending, we would all be out of work. If we want to keep people in work, we should encourage people to spend.
	In his great general theory, Keynes pointed out that the Egyptians built pyramids, and that created work, and medieval Europe built cathedrals, and that created work. As he said, we appear to
	"have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in."
	The Government need to bear it in mind that, whatever people from the City crawling back out of their holes say once they have got the money, we need to keep money going into the system. If we have to borrow to do it, we should borrow, to make sure that we do not go into recession and that people stay in work. It is no good messing around and taking four or five years to realise that we have to keep the economy up. The way to keep the economy up is by spending money; it is the only way to do it.

Michael Fallon: I remind the House of my interests stipulated in the register.
	It is rather exhilarating to hear the authentic voice of old Labour ringing out once again from the right hon. Member for Holborn and St. Pancras (Frank Dobson). In welcoming the Bill, which strengthens banking, I want to pick up one point that the right hon. Gentleman made. As my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said, there has never been a free market in banking. None of the deregulatory measures taken in the past 10 or 20 years has given us an unregulated banking system. To suggest, as not only the right hon. Member for Holborn and St. Pancras but others have done, that somehow Ronald Reagan or Margaret Thatcher so deregulated the banking system that they brought us to this crisis is nonsense. On the contrary, banking is the essential prerequisite of all our markets. It is the clean water in the financial system. Of course, we have an interest in ensuring that it continues to be something on which we can rely. We have to have banks that we can trust; we have to have banks that can trust each other. Over the past year we have clearly had neither.
	One does not have to be Michael Heseltine to understand that if banks are not working, the authorities have to intervene. I support the intervention that there has been. Indeed, if banks have been significantly illiquid over the past year, if they have been seriously under-capitalised, the regulator—the Financial Services Authority—ought to have intervened much earlier. That of course is the fault of the supervisory system set up by the Government of the right hon. Member for Holborn and St. Pancras back in 1997. It separated the responsibilities disastrously, and fatally left no one in overall charge.
	I fear that some of the measures taken by the Government last Wednesday and yesterday may not go far enough. The package is necessary, but it may not yet be sufficient. It does not, for example, deal with some of the toxicity that remains in the system. We may yet have to deal with it. I want to focus in the context of the Bill on the measures taken to recapitalise the system.
	The decision taken to inject taxpayer equity has some real dangers. When government plays God with the markets, there is a serious risk, as my hon. Friend the Member for Stratford-on-Avon (Mr. Maples) said, of creating inequity. It is extremely important not to repeat the mistakes of the United States authorities in deciding to rescue Bear Stearns and not to rescue Lehman's. If we are going to rescue banks with public money, we need to do so on the basis of some clearly established principles.
	At the moment, we have reached the position in which, out of our 10 UK banks with significant numbers of retail customers, we have rescued five, with four different solutions. That is regrettable. It leaves the market completely uncertain as to what will happen when the next bank needs to be rescued; it may be rescued on different terms yet again. It makes it more difficult, I suspect, to raise capital and equity for other businesses. It leaves us with a very real prospect that those banks that are fully public now will be pressed into the service of extending borrowing on a non-commercial basis to other industries that are in difficulty and, crucially, it reduces competition and choice.
	I was struck by the impact assessment published with the Bill. The only section that does not contain the required commentary on competition is the one on page 26 that deals with temporary public ownership. As others have said before me tonight, there is simply no competition policy. Yet competition is important. It has given us a huge range of savings products, borrowing products and mortgages over the past few years. It is easy with hindsight to scoff at the innovation of the City, but that innovation helped to bring asset ownership and wealth accumulation to a much wider section of the population than ever enjoyed them before.
	The right hon. Member for Holborn and St. Pancras has to be careful about his partisan remarks about Reagan and Thatcher. It was Democratic Congressmen in the United States who berated Fannie Mae and Freddie Mac for not doing enough to lend in the sub-prime market, and who encouraged more such lending through the Community Reinvestment Act. Here, too, we heard a chorus from the Labour Benches that we ought to be doing more for social inclusion, and that the banks should be lending more and more, irrespective of credit history and family background to encourage more people into home ownership. They did so—probably the right hon. Gentleman would welcome that—but, fatally, without satisfactory supervision and a sufficient regulatory structure and without providing the commensurate financial education to enable people to distinguish between products that were high, medium and low-risk.
	I want to mention briefly three aspects of the Bill. The special resolution procedure is important. Clearly, it is a nuclear power. We hope that it will never have to be used again. The problem with what the Government have proposed in several different drafts and finally in the Bill, as the Select Committee has pointed out, is the peripheral role that is still given to the Governor of the Bank of England. That is wrong. I understand why my hon. Friends on the Front Bench have suspended hostilities on that point in the national interest, but I do not see how we can ever again mount an effective rescue operation unless we restore the Governor of the Bank of England's authority and right to give advice, and ensure that the Bank has the working knowledge of the money markets that it used to have. That is absolutely essential, and I hope that we will be able to return to such a situation.
	The measure on depositor protection is long overdue. I do not see why measures to improve depositor protection could not have been introduced immediately after we returned from the summer recess last year, after the crisis in Northern Rock. I am suspicious of the argument that it would take 14 or seven days to return people's deposits, that some vast new computer machinery would be needed, and that such measures would all be too difficult for the banks. When the Treasury Committee was in Tokyo last week, we were told by a representative from the deposit guarantee fund there that if a bank closes on a Friday, all individual accounts are frozen, and people can go in on Monday morning and recover their deposits, up to the prescribed limit. I urge the Government to look again at the banks' rather feeble argument that that would take weeks or months to sort out. On the contrary, we need a much faster and much more transparent scheme. I would like to see notices placed in all bank branches reassuring people of the amount of protection to which they are entitled, and how they can claim it, as happens in the United States.
	Finally, there is the issue of pre- and post-funding. I have to say that I disagree somewhat with my right hon. and hon. Friends on the Front Bench on this subject. It is important to bind all the banks into the compensation scheme. Of course it is wholly the wrong time to approach banks and ask them to cough up, although it will never be exactly the right time to do so. However, the principle is important. There is no harm at all in putting the relevant provisions in the legislation, and getting banks used to the idea. The British Bankers Association has produced a particularly feeble submission on the subject. It is four pages long, and I cannot find the word "sorry" in it anywhere. The BBA says, "Well, the strong banks shouldn't have to bail out the weak." Strong banks should have to bail out the weak; that is what happens in other sectors. It is important that all banks make their contribution, but I fully understand why they cannot do so at the moment.
	The Bill should be supported tonight, and I think that it will help. However, it will not repair the damage that has been done to our economy, our constituents and the City of London by irresponsible lending, imprudent borrowing and wholly incompetent regulation. The Government are right to legislate, but they cannot wholly escape their responsibility.

Mark Lazarowicz: When the Chancellor took an intervention from me at the start of this debate, he was kind enough to remind the House that I am an Edinburgh MP, as he is. I make no apologies for the fact that my starting point in this speech, as in the speech that I made during the discussions held last week, is the interests of the many thousands of my constituents who are directly employed by some of the banks affected, and the many thousands more in Edinburgh and the surrounding areas who are indirectly affected because of the nature of their employment. The other Edinburgh MPs and I probably represent a greater concentration of people affected by the situation than MPs representing any other area in the country. Obviously, we are all extremely concerned about future employment in our city, as well as in the country as a whole.
	It is worth emphasising that the picture is not all bad by any means, even in the financial services sector, whether in Edinburgh or elsewhere. In Edinburgh, there are many thousands working in insurance, or working for banks other than those concerned and for other businesses in the financial sector. The strengths that led companies to establish headquarters in Edinburgh and elsewhere in Scotland are still there, and can be built on in future strategies to retain existing jobs and attract new employment.
	Nevertheless, there are undoubtedly a lot of worried people in Edinburgh and elsewhere, including my constituents, and it is important that we do what we can to provide them with reassurance based on an understanding and belief that we are going in the right direction. Clearly, I support the Bill and the measures that were taken last week, and one of the advantages of both is that they provide an opportunity to address problems on a longer-term basis. They remove the risk of a sudden fire sale of one of the major banks based in Edinburgh; obviously, that could quickly have a serious effect on jobs in that city. Of course, people still have understandable concerns about where they will be financially in a few months' or years' time—about what their job prospects will be, and about what that will mean for their standard of living. That is clearly an issue of concern to me, and to all Members across the country who are in a similar situation.
	I want to highlight an issue that I mentioned in debate last week. Unfortunately, my right hon. Friend the Financial Secretary to the Treasury was unable to respond to my question on the subject when he replied to that debate. When conditions are set, and when negotiations take place between the Government, the regulators and the banks that will receive assistance, what kind of consideration will be given to those who work in the industry, whether in Edinburgh, Halifax or the City of London? Not everyone employed in the City of London is a fat cat, and those people need to be remembered, too.
	I want to reassure hon. Members on either side of the Chamber who might think that I am suggesting detailed regulation of the employment practices of the banks in which the Government have taken a major share. I am not suggesting that; it would clearly be ridiculous and have a number of damaging consequences, not least for the banks. If, however, we are to take account of the need to provide continuing finance for the mortgage market and for small businesses—I support that—it is fair to take account, too, of the interests of those who work in the industry. The Government should recognise that, and try to raise the issue in discussions in the coming days, weeks and months.
	I accept that that raises the wider issue of how the Government will respond to pressure to intervene in more and more ways in how the banks in which they have a major stake operate. I do not, at this stage, want to suggest the kind of relationship that should exist, but the question highlights the fact that it is important to address the issue—not now, but sooner rather than later—of exactly what this period of partial nationalisation means for the way in which the banking sector will operate. I am thinking particularly of the banks in which the Government will have a major stake. The Government will come under all kinds of pressure to respond to particular actions taken by those banks.
	The Government would do themselves a lot of good if they set the ground rules fairly early on. We would then know what might happen during the period—a lengthy period, I suspect—in which the Government have a substantial stake in the banking industry. Like my right hon. Friend the Chancellor, I certainly hope that there will not be a high level of involvement for as long a time as some people might suggest, but it will certainly be a substantial involvement for some time to come.
	That highlights the need to address, not now but fairly soon, the more general question of what the strategy is for the UK's entire banking sector. What are we going to do under the new state of affairs? Where do we see things going in the years ahead? A number of hon. Members have already highlighted the questions that are raised by the prospect of banking activity being concentrated in ever fewer banks. The issue of consumer interest has been raised, and the reduction in competition. Again, in Scotland, at least in the short to medium term, the vast majority of banking provision is likely to be in the hands of banks on which the state has a major impact. That will apply in other parts of the country, too.
	What about the issue of stability in future? What happens if, some years hence, there are fewer but larger banks, and there is a threat to one of them? How do we react to that situation? These are real issues that need to be addressed and thought about so that a strategy can be worked through.
	What is the role of the mutual sector? There is concern that what is happening now may lead to pressures and further diminution of the mutual sector. This is the time to promote the sector and encourage it to grow and expand. Why, for example, does it seem to be assumed that Northern Rock will gradually be run down and sold off in its entirety? Why not use that as a basis for re-establishing Northern Rock as a mutual—a building society—solidly based in north-east England, with the remit to provide an opportunity for people to save and buy houses on a sensible basis?
	The same could be said of Scotland. I do not believe that those who suggest that the HBOS-Lloyds TSB merger should not go ahead are doing the interests of Scotland any good at all. Even the speculation over the past day or so about that arrangement highlights what would probably happen if that deal were to fall by the wayside. There would be severe consequences for HBOS if the deal were to collapse, so it is important that it should go ahead.
	In the long term, what are the possibilities of creating some separate Scottish institution to deal with the building society end of business, so to speak? Perhaps TSB could be resurrected as a separate mutual from parts of businesses that were brought together under HBOS-Lloyds TSB, with similar arrangements for other parts of the country. Such thinking may seem radical, but after the past few days all options, solutions and new directions should be on the agenda. Challenges can also be opportunities, and there are certainly plenty of opportunities, and plenty of challenges, to do some new thinking and to come up with solutions that may not have been conceivable a few weeks ago but which we can now discuss as a means of addressing some of the wider economic needs of the country, as well as the short-term emergency situation in which the Government have rightly intervened.
	Finally, I shall say a few words about international agreements, the talk about a new Bretton Woods, and new international arrangements to stabilise financial markets across the world. That is essential. I recognise and welcome the steps taken by the Prime Minister and the Chancellor. It is sad that we have not had even grudging acknowledgement of that from those on the Opposition Front Benches. Instead, we have heard attempts to do down what has been achieved. The fact that at last over the past few days the world has moved to stabilise the situation, we hope, is in no small part due to the leadership shown by the UK Government and by the Prime Minister and the Chancellor in particular.
	Let us not forget other international agreements, discussions and arrangements that are not going forward so quickly or so apparently successfully—the agreements on international debt relief and on international aid, on which the United Kingdom has taken the lead and has been complying with its commitments, whereas other countries have been falling behind in carrying out what they said they would do in agreements made over the past few years.
	Let us not allow the interests and concerns of some of the poorest in the world to be forgotten in the discussions and debates about the international financial system. Those are the people who would lose more than any of us from the type of collapse that we hope has been prevented. They are the people who could lose out because of a failure to meet the commitments entered into a few years ago. Let us make sure that those international agreements are also kept on the agenda, as well as the arrangements and agreements needed to stabilise the financial sector.

John Maples: No, I have made my point on that and I want to move on to bank regulation, which is really what the Bill is about and where the failures have been.
	The fact that the Government have had to underwrite the system in the way that they have and put in unprecedented sums of public money will, I am sure, lead to much tougher regulation. I hope that that regulation will be really intelligent, but I suspect that the Americans will make this mistake too. We do not want to put London in a position where we drive financial services business away. It is still a big industry and not everyone has been at fault here. Not everyone has been a greedy spiv. There are plenty of people in the City doing very ordinary jobs as secretaries, receptionists and computer programmers, and they will lose their jobs too. We need to protect the industry by regulating it intelligently. I do not know whether the regulation should be light touch or heavy touch, but in our search for the solution to this crisis, we should not lay up such problems.
	I want to identify a couple of mistakes. First, it was a mistake to downgrade the role of the Bank of England. That point has been made by Opposition Front-Bench spokesmen extremely well. It was operating in the markets the whole time. It was operating in the bond markets, the foreign currency markets and the money markets. It understands what is happening there in a way that I do not think the FSA ever has. Secondly, the FSA brought together a series of regulatory organisations with a preponderance of interest in the consumer. That is absolutely right; the retail consumer needs to be protected, but the culture of the FSA has been about protecting the retail consumer, depositor, investor or pension fund holder, and it has not concentrated sufficiently on, or understood sufficiently, the money markets in the way that the Bank of England does.
	I was in favour at one time of going back to where we were and giving all this power back to the Bank of England, but the difficulty of that is that the counter-party risk in securities houses now is so great that it can bring down banks as well, so it probably does require the securities regulator, the FSA, to be involved. I hope that the new system will give the Bank of England not just an additional enhanced power, but the primary role in this. The problem with tripartite regulation is that everyone thinks that somebody else is doing it. That is pretty clearly what happened here. Everyone's eye was off the ball until a few months ago. It would probably be best if the Bank of England had the lead role in this.
	Warren Buffett, who is my capitalist guru to put up against the interventionist guru of my right hon. Friend the shadow spokesman, said that bankers seem to have spent the last 10 years inventing a whole new series of ways of losing money, which was completely unnecessary because the old ways were working fine. We will have a credit crisis every so often. There is a credit cycle, but the important thing is that if the monetary and regulatory authorities get a grip on that and do not let the money supply get out of control and raise capital requirements as risks increase, we can ameliorate this and not end up with the crisis that we are in at the moment.
	The next crisis will be different. Each one is different and the next one will be caused by something else. In trying to ensure that this one does not happen again, let us not take our eye off the more general ball of what is important, which is that banks maintain adequate capital and that the authorities do not allow the money supply to grow too fast.
	Those points have been made by many who have spoken, but I want to make a couple of others. I have a list of culprits and first, in ascending order of culpability, I perhaps put myself and some of my colleagues, because I noticed too late that this was happening. I used to follow this subject the whole time and I like to think that if I had not moved off to worrying about foreign affairs more, I would have noticed what was happening. But the fact is that until the Northern Rock fiasco, I did not realise how bad this problem was likely to get, and I think that goes for some of us, though not others, particularly on the Treasury Committee, who have flagged up some of the dangers.
	Secondly, for every reckless lender, there was a reckless borrower, and people must take some responsibility for their own actions, not just in deposits but in what they borrow and being confident that they can afford to do that. They were, of course, encouraged to do so by people who were a lot more sophisticated than they were, and some innocent borrowers are paying the price for that.
	My third culprit in ascending order of culpability is the Bank of England for allowing broad money to grow so fast and reducing interest rates while it was doing so, and then being surprised that inflation on the retail prices index had risen to 5 per cent. I do not believe that it is all due to the oil price, because when the price of one commodity rises, people have less money to spend on something else. It may alter the index, but it does not alter inflation—if one, like me, is still a monetarist. Therefore, the Bank of England has some pretty serious questions to answer. The only role it really has at the moment is inflation and monetary policy, and its eye has been a bit off the ball there. It happened in the mid-1980s when we had an excuse, which was that the market had been deregulated at the point and the authorities thought that there was a one-off adjustment in people's willingness to carry debt, which there probably was, but it still resulted in inflation towards the end of the 1980s and partly caused the stock market crash of 1987. So the Bank has plenty of history to draw on here so that it does not make the same mistakes again.
	My fourth culprit—now we are getting to the serious culprits—is the FSA. It has been asleep at the wheel or on the bridge, whatever metaphor one wants to use. It is extraordinary to me that the Government have not insisted on any resignations from the FSA over this. It is a total, comprehensive and abject failure of regulation that this crisis was allowed to get as bad as it did. I am not saying that people should have spotted three or four years ago that this would happen, but should they have done so one or two years ago? Very little, if anything at all, seems to have been done during that period by the regulators.
	My fifth culprit—we are now getting to those who are seriously involved—is the banks themselves. What they have been up to is reckless and irresponsible, and bankers are supposed to be extraordinarily intelligent people, who are paid very large amounts of money to run our affairs. The Government seem to have had to insist upon the resignations of the three executives who announced their resignations yesterday. I notice that they did not do so voluntarily. I do not know whether anyone saw the pictures on television of the board of a Japanese insurance company that went bust about two weeks ago, but the board announced what had happened, took full blame, and bowed in sorrow, shame and apology. There seems to be no shame on the part of those who have been happy to be paid huge sums. The chairman of HBOS was paid £750,000 a year—and the same applies to the Royal Bank of Scotland—and the chief executives were paid £2 million and £4 million respectively. Is there no sense of honour any more? I know that people do not resign very often, and perhaps that goes for politicians as much as bankers. They cannot have seen that they made the most horrendous mistakes and that they owe the rest of us an apology in terms of at least resigning, and not being forced to go. However, one cannot just blame them because they have had supine boards of directors who clearly did not understand what was going on. The good and great names of the Scottish establishment are all over the Royal Bank of Scotland's board, and of the English establishment all over one or two of the others as well. Where were they, and where were the shareholders? Why were not the shareholders saying something about this? It is not just the fault of the executives; they were allowed to get away with this by their boards of directors and shareholders. However, they must bear the lion's share of the blame for this.
	Usually one would not worry too much if a private sector company, even a big one, got into serious difficulties. The shareholders would lose some money and it would be restructured and recapitalised. The problem with banks is that they can suck the economy down with them too. That is why they have a special responsibility to the community that they serve, not just to look after their own affairs, but when they get things wrong there should be the understanding that they endanger the whole economy as well.
	Now we come to the Government, and I am afraid that the bipartisan chorus of the last few weeks has been because the Government have had a huge crisis on their hands and have had to find a solution. I believe that in the circumstances they have found the right solution. We will see whether it works. I am not sure what else they could have done, except perhaps, as I said, do it a little sooner. But the Chancellor of the Exchequer has been in office for 15 months. Northern Rock was more than a year ago, and that was a year in which far more could have been done to put right some of the faults in the system. But the person who has been there for 11 years and who is really responsible for most of what has gone wrong is the Prime Minister. It was he who changed the regulatory system to put the FSA in charge with this tripartite arrangement and took the Bank of England very specifically out of it because he thought that it would be too powerful if it had monetary policy and bank oversight as well. He presided over the debt-fuelled boom of the last 11 years that has been criticised for several years. He is the person who let public spending rip in a way that fuelled that boom. He is the person who ran public sector fiscal deficits at the height of the boom at a point when we should have been running surpluses, so that now the Government would have had more room to adjust to the recession in the way that they usually would in a Keynesian sense, but now they have to do so by racking up even more borrowing on top of borrowing in good times. He is the person who, having given the Bank monetary independence and the FSA responsibility for bank regulation, failed to monitor what they were doing.

John Maples: No, I want to finish my point.
	The money supply was growing at 11, 12, 13 per cent. when the Prime Minister was Chancellor. I do not know whether he made any phone calls about it to the Governor of the Bank of England, but he certainly should have done. In the arguments over the Governor's reappointment, that is something that he should have been doing. He has watched the FSA, with the supine attitude that it seems to have had to practically everything that has happened on its watch; an authority that clearly did not have the expertise to regulate the banking system. It seems that everybody could see a crunch of some sort coming, except the former Chancellor.

John Maples: No, I shall not give way; I want to finish my remarks now.
	The Prime Minister tends to seek refuge in the notion that the crisis is all the fault of the United States, but the United Kingdom banking system was and is his responsibility. Yesterday, he made an interesting speech to Reuters. Anyone reading it would think that it had been made by some visiting consultant who had been hired a couple of weeks ago to tell us what was wrong with the system. The speech was about all the things that are wrong and all the things that we should do to put them right. Why did he not recognise those things two or three years ago? Why has he not been doing those things?
	We use the fire analogy a lot. The Prime Minister is like the watchman at the office building. He watches an increasing number of all sorts of people whom he has never seen before—some of them looking pretty dodgy—going in and out. Then he watches people taking petrol in, then somebody who takes matches in and when the building goes up in flames, he expects our gratitude for phoning the fire brigade. The Prime Minister was responsible for the system when it imploded and he expects our gratitude for having cobbled together a solution to it. When the banking element of this crisis is behind us and it emerges as what I believe will be an 18-month to two-year recession, people will remember that this Government presided over the ingredients of that recession.

Stewart Hosie: It is a pleasure to follow the hon. Member for Stratford-on-Avon (Mr. Maples). I have heard him make similar speeches about how individuals should take responsibility to manage risk. He has given the same treatise about moral hazard before, and I know that he is not comfortable with the full, all-deposit guarantee. I understand his point when it is applied to normal circumstances, and I would agree with him in normal circumstances.
	However, the economic climate is very unusual at the moment. Obviously, we welcome the increase in the deposit guarantee to £50,000, although we would have liked it to have gone much further. With the increase came the argument that the guarantee covered 98 per cent. of all depositors, which is absolutely true; the problem is that it goes nowhere near covering 98 per cent. of all deposits. That is why local authorities, charities and pension funds have huge exposure if they put part of their money into some of the banks and schemes.
	Icesave was used as an example. I am aware of one organisation that put a substantial amount into one of the Icelandic banks. It did not simply look up the website and send a cheque. It checked not with one credit agency, but all three; it did all the due diligence that it could, and it still might get stung. When we get to the stage of considering regulation more generally, rather than the narrow but important element in the Bill, the Government should consider how the credit rating agencies work, and the agencies' transparency and fee structures. I do not mean to be over-critical, but something has gone seriously wrong when people depend on credit ratings that turn out to be wholly false.
	I shall not range too widely; I want to stick to specific clauses in the Bill. Before I do, I should say that I agree with many hon. Members that we need to have the debate on the necessary changes in regulation soon and that I want go into a little depth on the subject of my earlier intervention on the Chancellor. The Banking Bill flows from "Banking reform—protecting depositors: a discussion paper", published in October 2007; from the Chancellor's statement on 11 October that he would review the existing supervisory regime; from the January 2008 "Financial stability and depositor protection: strengthening the framework" document; and from the July 2008 "Financial stability and depositor protection: further consultation" document. I should not forget the Banking (Special Provisions) Bill, which allowed the nationalisation of Northern Rock.
	All those other documents were informed mainly by the Northern Rock crisis. This Bill follows in the wake of a new banking crisis and must set out the framework for dealing with failing banks generally—bank insolvency, bank administration, the Financial Services Compensation Scheme, inter-bank payments and other matters such as the Scottish and Northern Irish note issue, on which I shall touch briefly at the end. Other aspects of rebuilding confidence and stability in the banking system are variously the responsibility of the FSA, the Bank of England or the Treasury and may not require legislation; existing powers may be able to introduce such measures.
	I am pleased that we are finally getting round to discussing the Bill, not least because the foreword to the July 2008 Treasury publication that I mentioned stated:
	"The recent sustained period of disruption in global financial markets, starting in summer 2007, has had a widespread impact on firms and markets across the world".
	It is right to put on the record that nine months ago, on 21 January, I asked the Chancellor a question that others have also raised: would it not make sense to draw up the detailed changes needed to deal with failing banks before a nationalisation or takeover was required? He said that that would take some time, although I did not expect it to take this long.
	Since the Northern Rock debates—let alone the Northern Rock rescue plan, which happened some time later—three banks have been recapitalised, the takeover of Bradford & Bingley has been facilitated, there has been a massive expansion in liquidity provision and an increase in depositor protection, and the Government have stood behind inter-bank lending. Although I back those plans and expect them to work, it seems staggering that a key plank of the Government's programme—to have in place the full panoply of protection that we needed, including to deal with failing banks—is being introduced a year after we first discussed it in October 2007 and 18 months after what the Government recognise as the start of the financial crisis in summer 2007. We are putting in place provision to deal with failing banks after the banks have failed and a year after we started debating the issue.
	I want to turn to some of the clauses, although I am not going to go through all the clauses of concern to me because that can be done in Committee, and other hon. Members have raised many of my concerns already. However, I have a few questions that have not yet been touched on. Before I come to those, let me mention the special resolution regime and in particular the concept of the bridge bank as a stabilisation option. During the Banking (Special Provisions) Bill, I said that there was the facility for a primary transfer of private assets to a public body and then the provision for a secondary transfer back to the private sector. However, there did not appear to be provision for what we might call a private sector administration and then a secondary transfer to the private sector proper. I am very pleased that the bridge bank concept is there as an intermediate stage to allow secondary transfers to wherever; that is particularly helpful.
	Clause 19 relates to the use of a share transfer instrument. That can allow bank directors to be appointed, removed or have their contracts varied, and that is extremely sensible. However as the hon. Member for South Derbyshire (Mr. Todd), the right hon. and learned Member for Rushcliffe (Mr. Clarke) and others said, we need to look again at the relationship between the state and the banking system because of the new arrangements—the huge stake that the Government and the taxpayer have in the banks. It is worth the Treasury considering that that power to have bank directors appointed, removed or their conditions varied should be applicable only to the Bank of England and that the Treasury should not be included as a body able to hire, fire or vary contracts. If it had those powers, that would bring a real risk—even if only of perception—of the wrong sort of political interference. By all means, the Bank of England should have the powers, and quite right too. However, if the Treasury took such decisions, that might give the wrong signal. Why has the Treasury been included as a body able to direct such hiring and firing and the amendment of bank directors' contracts?
	Clauses 42 and 43 are about the restriction of partial transfers to protect certain interests. That is also welcome, not least because it gives the Treasury the powers to avoid the difficulties with "set-off" or "netting" arrangements; that is incredibly important if everything is to be done properly. However, all that will be achieved by secondary legislation. When will the Treasury publish the draft statutory instruments? Will there at least be codes and guidelines for us to see in Committee?
	Clause 64 has been touched on, and it is extraordinarily wide. It allows the Treasury, by regulation, to make provision in relation to capital gains tax, corporation tax, income tax, inheritance tax and stamp duty of varying sorts. Subsection (4)(a) allows it to
	"modify or disapply an enactment".
	The Chancellor said earlier that that would only happen in the prosecution of the delivery of a special regime for a failed bank—I am paraphrasing, but I think that that is what he said. They are very sweeping powers, and if the Economic Secretary could tell us why the Treasury deemed it necessary to include such a wide list, that would be helpful.
	Clause 73 covers the distribution of assets on dissolution or winding up the surplus after creditors and shareholders have been paid. I presume that the power to alter priorities is to ensure that, where taxpayers money has been used to prop up and assist a building society, money can be returned to the taxpayer should there be any surplus left, rather than dispersed in the normal way with the winding-up of a company. I would be grateful for confirmation of the logic behind the power to alter priorities in clause 73.
	Part 4 of the Bill will empower the Treasury to regulate the pre-funding of the Financial Services Compensation Scheme. We have heard a lot about that, and I want to go on record to say what everyone else has said: it is absolutely right and proper that pre-funding takes place, but to do it now at a time of fragility, thin balance sheets and terror in the banking system might not be the cleverest idea. It would be useful if the Economic Secretary could advise what the Government's thinking is on that, and tell us whether they want to see heavy-duty pre-funding now, or whether it will be rolled out over time as economic circumstances improve.
	I turn briefly to part 6, which deals with Scottish and Northern Ireland banknotes. I understand that the provisions will allow authorised banks to continue to issue them in the normal way. The question that arises with the Lloyds TSB takeover of HBOS is whether the Bank of Scotland part of HBOS, or Lloyds TSB HBOS, will still be an authorised bank to ensure the continued printing and distribution of Bank of Scotland notes, or would the new entity be authorised to do so? I am sure that that is the case—the Chancellor seemed to indicate that it was earlier—but clarification would be helpful.
	I would like to end with two questions, which have been touched on, about the Bank of England. Clause 218 might effectively reduce the number of meetings of the court of directors by half, and clause 223 removes the requirement for the Bank to produce a weekly return of accounts. At face value, that opens up questions about the proper level of internal questioning and scrutiny, and of external transparency of the Bank. I understand the Chancellor's argument that when the Bank of England is the lender of last resort, in extremis, any indication that Bank A, B or C has borrowed £5 billion, £10 billion or £15 billion from the Bank of England might send a particular signal to the market. But on the basis that the Bank is currently almost a lender of first resort, that stigma has gone completely, and I wonder whether that lack of transparency and the consequent opaqueness is the right thing to do.
	I am sure that the Economic Secretary has taken notes on those questions and will give me full answers in few minutes time when he sums up, or in Committee at some later point. We have no intention at all of standing in the way of the Bill. We welcome the stabilisation package, and we have said that we expect it to work. We may table amendments with the purpose to probe, or to improve, and we may well have tough questions on the rationale for certain things, but tonight at any rate, we will certainly not be calling for a Division on the Banking Bill.

John Redwood: I welcome a Bill on this subject, and I am glad that my right hon. and hon. Friends on the Front Bench are in a collaborative spirit because this is a case where working together might improve the Bill, but it needs a lot of improvement because the main things that have gone wrong in the past 11 years stem from the grave weakening of the Bank of England that occurred in 1997.
	I would like the Bill to go much further than the current draft in giving back to the Bank of England the powers that it had before 1997. I would like the Bill to make it clear that the Bank of England needs to see and understand all of the business in the money markets. The Bank needs to have powers and duties so that it is the prime driver of the money markets. I would like to see the Bank have those powers back so that it is a better judge of the amount of cash and liquidity that we need in the system at any given time, and so that it is more able to enforce its interest rates in the marketplace, which it has been unable to do during the recent, extraordinary breakdown of the markets.
	Like my hon. Friend the Member for Stratford-on-Avon (Mr. Maples) and others, I believe that this is not just a story of big banking error—although it is clearly such a story—but a story of massive regulatory failure. I would highlight three regulatory failures, in a different way from my hon. Friends so as not to bore Members or repeat things that have already been stated. The first failure is the regulatory failure of the Monetary Policy Committee of the Bank of England. In the early part of the decade, the committee kept interest rates far too low. It seemed unaware of the power of low interest rates to drive ever more credit, lending and borrowing in the system, and it ignored all the warning signs in the asset markets and the credit bubble that was emerging in the banking figures. Worse than that, the committee is now making exactly the same mistake in reverse. Now that there is a need to fight the problem of recession and deflation, the MPC is driving the car by looking in the rear-view mirror. It is shocked at how much inflation has got out of control, so it is keeping interest rates far too high for current conditions, and way out of line with those in the United States of America, for example.

John Redwood: It clearly was not because the target was to keep inflation to 2 per cent. Inflation is currently 5 per cent., so it is 150 per cent. over the target. I am afraid we have to judge that the MPC got it comprehensively wrong. I am not suggesting taking the ability away, or putting the matter back under ministerial control; I am making a plea for a much stronger Bank of England that sees all the market activity and Government debt, which was taken away from it and nationalised into the Treasury, and which sees all the day-to-day transactions of the banks because it is regulating them. It would then understand the money markets, and if bankers, alongside academic economists, were trying to produce a total package on how we intervene, how much money we supply and at what price we supply money, the institution would have a better chance of making those independent judgments in the interests of the whole economy. I do not think that anyone in this House can allege that the MPC has been a success because inflation stands at two and a half times the target, the money markets are in meltdown, and interest rates are now far too high for most borrowers. That increases the likelihood of default on loans and further undermines the asset base of the banking system, which is in a very fragile condition.
	The second set of errors that were made by the regulators relate to money market liquidity. Perhaps things were too integrated on this occasion, but in the early part of the decade the Bank of England reinforced the message of the MPC by making large amounts of cash available—the markets were too liquid. More recently, the Bank started to withdraw liquidity and every time it did so in 2007, and even in 2008, it exposed more financial institutions to difficult pressures, which we have seen bubble up from time to time. The lesson has been learned there, and while I regard the MPC as still making the same old mistakes, the Bank is now doing exactly the right thing, with Government help, by making huge amounts of liquidity available. There have been statements that it intends to carry on doing so while the fragility continues, and I am pleased we have got to that point, but if we look at the record of the previous seven years, we see—because the Bank did not have the knowledge and powers it used to have—that it was too easy in the easy times and that it withdrew too much liquidity at times of stress and difficulty.
	The third set of problems has arisen in the way that banking capital and banking caution have been regulated, as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my hon. Friend the Member for Stratford-on-Avon said. There is no doubt that, again, we had pro-cyclical regulation. In the easy money times, the regulator did not seem too worried about banking capital and the gearing. Indeed, we saw the gearing of institutions massively increase over the levels of the '80s and '90s. I am afraid that those Members who say that such problems date back to the '80s do not understand the situation. The gearing in banks is far higher today than it was allowed to be under the system in the '80s and '90s.
	Now we see, at this rather late stage, the regulatory pressures towards having more banking capital relative to the stock of debt, at exactly the point where the system is extremely fragile. I urge the Government to be careful not to go in for more pro-cyclical regulation, so that they do not increase the deflationary forces at exactly the wrong time, just as the regulatory system seemed to increase the inflationary forces during the days when money was far too easy.
	I would like the Bank of England to be reconnected, by being the agent for Government debt, by being the supervisor of the banks, so that it sees all the money market transactions, and by being given more opportunity to manage not just the price but the quantity of money, so that we can have a smoother progression. We have lurched from boom to bust and from unacceptably high inflation to what I think will prove to be a lot of disinflation, as we see the impact of the credit implosion come through in prices.
	When I was first invited into government, I was given the job of insurance regulator for the then Secretary of State for Trade and Industry. The two main duties of the insurance regulator, which was then a ministerial role, were to ensure that the insurance companies were solvent and to ensure that they were run by fit and proper people. That regime was rather similar to the kind of regime that applies in broad outline to banks and it was perfectly sensible. Coming from a financial background, I had a great fear that conditions would get tough in the early '90s and that there could be a casualty or two in the list, so I asked for proper information from my regulatory team. It took me a little while to get it in the form that I wanted, but we had the powers to procure it.
	Once I had on my desk the balance sheet and the profit-and-loss risk, as we saw it, of those institutions, I managed it. If I saw an institution that I thought might be short of cash or in some other difficulty in six months or a year, I would get on the phone to the chairman of that company privately and say, "I am your friendly regulator. I do not have a power to instruct you to raise money, but it seems to me that it would be very helpful if you did raise some money." In each case the chairman was very obliging and said, "Actually, it's a good idea," or, "Yes, we're going to do it." In each case they raised money and those institutions got through what was a fairly unpleasant insurance downturn with no problem.
	It is not that difficult for a regulator to do that, because they have access to the information, but it is most important to follow this fundamental principle: they must always act in private. They must never name the institution or seek any credit at the time, because we are talking about incredibly price-sensitive information. If any wind or whiff gets out of the office that the regulator has even a scintilla of doubt about an institution, there could be a run on it and a lot of negative journalism about it. The regulator's task will then be 10 times greater, because the institution will be on the slippery slope downwards and it will be damaged.
	I therefore urge the Government to ensure that there are no leaks or running commentary to us and the public as such difficult and sensitive discussions are under way. Those occasions are ones when it is best if things are done in private and as speedily as possible, and if we are told only when the decision has been made and the proper authorities can be notified.
	Apart from greater powers for the Bank and whatever powers the regulator needs to regulate intelligently in the way that I have described, I would also like to see some kind of control in the Bill of the ability of the Government and the Bank to use the special powers of acquisition. I strongly believe that in practically every case, if not in every case, it should be possible to solve such problems with private sector solutions, such as through private sector fundraising or by cancelling the dividend, cutting costs, shedding some assets, having some disposals or ensuring that capital can be found from sources outside over a reasonable time period.
	Those are some of the panoply of ways a business can try to get its capital ratios into shape and get the cash that it needs to continue its business. It should be in the interests of all well-meaning people in the House to keep those things in the private sector, to make businesses accept the disciplines of the private sector, to blame those in charge of them when they get it wrong and to ensure that the new management sort things out as quickly as possible.
	However, my worry about the proposals before us is that the taxpayer is being asked to take on too much risk. The three banks to which public capital might be subscribed—I say "might" because a number of votes have to take place and there are still opportunities for private shareholders to come forward with money—have, in aggregate, balance sheets of almost £3 trillion. That is twice the country's national income and around five times its annual tax revenue. If something went wrong and just 1 per cent. of those assets had to be written off, the owners of those banks would collectively lose £30 billion.
	Thirty billion pounds is a very large sum of money, even for the British taxpayer. It is 5 per cent. of tax revenue in a single year. Are we sure that there could not be a 1 per cent. loss on the assets of those banks when they come into public ownership? I know that some of those assets are as risk free as one can get, and include Treasury bills and that sort of thing, but some of them are not. Some of them are the mortgages and the loans to companies that we have been worrying about. We are being asked to absorb those assets as we go into recession, when it will not be just the mortgage book that deteriorates in quality, but the loan book to companies, as I fear that we are about to enter a period when companies will find it difficult to keep going. In some cases they will find it difficult to earn a profit or generate cash and will look to their bankers for more support. In some cases, businesses will stumble and be incapable of keeping the payments going.
	I would therefore like a reminder in the legislation, and perhaps a requirement to come back to the House in an emergency, that there must be some limit. Just as we are now preaching to the private sector that banks should not get over-geared and over-borrowed, should we not be preaching to ourselves that the Government and the public sector should not get too over-borrowed and over-extended? I hope that the Government will go away over the next two or three weeks, work with those banks that have given an indication that they might like public capital, go through the figures again and ask, "How can you get the demand down? How can you generate more cash for yourself? How can you get more private sector capital coming into your bank to cut the taxpayer risk?" Otherwise, the British state will be left in a weakened condition, which is not what we want at this juncture.

Andrew Pelling: My declarations are on the record, but I should add to them the risks that I have with a NatWest overdraft and a NatWest mortgage.
	The Bill is welcome if it allows for the opportunity for bad debt to be brought off the balance sheets of the banks. In response to my earlier intervention, the Chancellor reminded us that there is already temporary provision for those bad debts to fall upon the balance sheet of the nation, but it is not a permanent change. My view is that what we are seeing is purely a relief rally. The prospects for things to get a great deal worse are still there. That is because, without the masking of Government support, the trust in those financial institutions still does not exist. They are badly wounded institutions that need that bad debt cleansed from the wounds that have done them so much damage. What has been done is a powerful palliative, but it is not a cure.
	There is something very British about this debate, which is about pulling together. Also the Bill is perhaps about closing the barn door after the horse has bolted, because unfortunately that the crisis will, I think, get worse, particularly if we rely upon some of the current consensus on how financial affairs should have been pursued over the past 25 years. It is not necessarily the case that the Bank of England's performance is so good that it should have more power. The Chairman of the Treasury Committee referred earlier to the experience of Japan, where the lack of a policy initiative led to interest rates being held far too high, damaging the economy for almost a generation through the destruction of asset value and the subsequent destruction of economic growth.
	I attended an induction for a vicar in one of my local churches recently, at which the Bishop of Croydon spoke. He spoke from a moral point of view, but he also gave us an economic lecture about the value of money. He said reassuringly to the large congregation that the assets of the nation remained the same. That is very much an economic analysis, because in reality it is money that has been devalued over recent years.
	Serious consideration should be given to the shadow Chancellor's proposals for the introduction of what I would call circuit breakers. In a bastardised means of pursuing Keynesianism through monetary policy, every time there has been an economic crisis, misjudgments have been made about the weakness of the economy. Recently, that has been seen in the collapse of the equity market in 1987, the Asian financial crisis and the dotcom boom. We also saw exaggerated easing maintained for far too long. Most importantly, the economic and political consensus has been about the targeting of retail price inflation, with no one taking responsibility for asset price inflation. The problems can perhaps be dated back to 1971, when President Nixon moved the dollar away from its gold link. In many ways, the abuse of money by bankers has been the problem.
	I noted the comment by the right hon. Member for Holborn and St. Pancras (Frank Dobson) about the way in which bankers can also devalue the use of language. The word "innovation" was often an alternative way of describing moving away from transparency in financial markets, which has left the financial institutions badly placed to take a proper measure of their risks and losses. Indeed, I was much taken by a commentary by Jon Moulton of Alchemy Partners, who very appropriately said that the economy needed innovation among investment bankers as much as we need innovation among airline pilots.
	The problem of the loss of transparency ought to be addressed in legislation, as there is a continued desire by financial markets to move further and further away from transparency. There seems to be some support in the City—and, indeed, some blessing from the Government—for the idea of encouraging what are called dark pools. These involve the ability to trade in equities off the stock market and out of sight in terms of the immediate reporting of substantial trading in a market. That strikes me as a counter-intuitive approach.
	A further issue that cuts against the general consensual thrust of the thinking on how our financial markets should be run is the impact of globalisation. There was a time when the Bank of England would have had real responsibility for giving permission for transactions to be issued within the sterling market. Perhaps there is a role for authorities to give such approvals, particularly for products that are sold from outside our own European region.
	One of the strengths of the Asian financial system is that it is, to some extent, separate from the rest of the international global financial system. Some of the protection that has lessened the effect of the crisis on the Asian markets is a result of that market stepping slightly aside from markets elsewhere. We need to consider whether the liberal economic approach that we have taken over the past 25 years is indeed the right way to progress. Given our very damaged domestic financial institutions, we need to ask whether, even with capitalisation from the taxpayer, they will be in a position to lend for mortgages and for commerce.
	There is a lot to be learned from what happened during the Swedish financial crisis. It was felt important to set up separate governmental organisations, such as SBAB and Finansius, to act as a spur to encourage competition and confidence in private sector institutions so that they would continue to lend money to the economy, to keep it robust.
	There is also the issue of who gets the most protection in this kind of financial crisis. The reality is that it is not the small individual who has taken on large debts who will be bailed out, because they do not have the same fundamental impact on the overall macro-economy that the large financial institutions have. It is incumbent on any legislation—this Bill or any further legislation—to deal with the question of social and commercial responsibility, in relation to the danger of a further downward spiral in the performance of the economy if we were to pursue foreclosures and the shedding of assets, which would further complicate the economic crisis.
	There is a need to impose on financial institutions some kind of circuit breaker, in regard to the disposal—and forced disposal—of assets. I am certain that my constituents in Croydon will think very little of the idea of bailing out banks and senior investment bankers if they themselves are not to be offered at least some breathing space in which to determine how best to cope with the financial crisis.

John Howell: It is worth reiterating that a major banking failure in this country is extremely rare. That makes the need to answer questions about this crisis sooner rather than later even more important. We are told, however, that we are required to deal not only with the present crisis but to introduce a regime for long-term confidence—hence the Chancellor's reference to this legislation being permanent.
	The problem that I have with the reference by the hon. Member for Twickenham (Dr. Cable) to a tsunami is that tsunamis are natural and largely uncontrollable. The image of a house fire used by my hon. Friend the Member for Tatton (Mr. Osborne) is much more apt, because house fires are often caused by the carelessness of owners, and they can be prevented. We have heard a series of recommendations from Conservative Members on how reform needs to take place. To give the Government credit, we have also been teased with opportunities for reform that will be brought forward in due course, including the much-awaited report from Lord Turner.
	It would be a much greater reflection of confidence in the UK financial system in the long term if, as I would have liked, there had been some provision in the Bill to return to parts of it at a future date, in the light of experience and of needs. The impact assessment highlights the potential for shareholders' interests to diverge from those of depositors in times of financial stress. That is seen most clearly in the balance that needs to be struck between making rapid pay-outs to depositors and the need to maintain value in the banks. Disorderly bank failures will affect the City's pre-eminence as a financial centre, but so too will maintaining a divergence between the interests of shareholders and depositors, when they do not normally conflict. It is important to ensure that these are brought back into alignment as quickly as possible, and I would like some assurance from the Minister that he feels comfortable that that is embedded within the Bill.
	I raise this issue because the time scales for the Government holding shares and being involved in the management of banks are likely to be long. The impact assessment hints at that, in showing that the average length of the crises in the developed countries is five and a half years. As the Bill proceeds, we need more detail on how and when intervention will occur, more modelling of the effects on shareholder confidence and a reassurance that the Government will resist micro-management for long periods. There is a follow-on from that in respect of the work done for the impact assessment, as we must ensure that the costs of the proposed measures have been accurately defined, given the lengths of time that are likely to be involved.
	The Bill is heavily dependent not just on secondary legislation, but on the code of practice. I was grateful for the comments and assurance earlier that the code of practice will be produced in parallel with progress on the Bill. I would like to make two points about the code. A restricted number of people are presently envisaged as consultees for the code of practice. It needs to be wider, and we need input from practitioners to ensure that the code is practical and avoids unintended consequences. I look forward to hearing the Minister's comments on that.
	The list of areas to be covered in the code is set out in clause 5. Given the emphasis elsewhere on protecting depositors, I am surprised that the code of practice makes no mention of communication with depositors and provides no guidance on it. I would very much like to see a widening of the code beyond its current narrow confines, so that we can see how it will operate at a wider level.
	The problem of information from the Bank of England is still a live issue. Clause 223 removes the need for the Bank to prepare a weekly return of accounts. I cannot pretend that the Bank of England's weekly return of accounts has been my favourite bedtime reading, and I understand why the measure is necessary—something my right hon. Friend the Member for Wokingham (Mr. Redwood) hinted at in his speech. However, the lack of transparency over introducing it now, when the weekly return is already in place, will create the impression of doing deals behind closed doors, leading to the inability of shareholders and depositors to hold management to account. I have to say that I do not think that it will work, as I am less sanguine than my right hon. Friend about the City's ability not to leak. It was never my experience that it was able to keep a secret for very long; indeed, the situation where rumours are about is far more dangerous than where there is real information.
	A number of Members have spoken about the role of the Bank of England. I support the greater prominence of its role, as set out in the Bill. I also welcome the Chancellor's agreement to review the regulatory system. What we need to ensure is that it regulates the right things, but I pick up a point made by some Labour Members: having a light touch and being radical are not incompatible in producing a review of the regulatory system. I welcome the Bank of England being given oversight of inter-bank payment systems, as when the Bill kicks in, customers should see no difference during a crisis.

Charles Walker: Thank you for calling me, Mr. Deputy Speaker, as I have had the slow torture of being the last Back-Bench Member to speak in the debate. May I say how pleased I am to see my hon. Friend the Member for Henley (John Howell) making such an impression after spending such a short time in this place? I reserve particular pleasure for seeing the hon. Member for Croydon, Central (Mr. Pelling) back in the Chamber; he has been away for a short while, but he made a robust speech and seems to be in robust form. It is very good to have him back.
	This is the first chance, apart from the 90-minute debate we had last week, for Members to get near to the events—the almost calamitous events—of the last couple of weeks. I appreciate that this is not a debate on the current banking crisis, so I will try to speak within the bounds of the Bill before us. Clearly, however, there has been a collective failure of the regulatory sector and the banking sector. Of course, having been in power for the last 11 years, the Government have to take their share of responsibility as well, but I do not want to take a gratuitous swipe at the Government at this stage, as there will be plenty of opportunities to do so in the future. The collective failure has been clear and we cannot ignore the fact that the International Monetary Fund has said that, of probably all the developed economies of western Europe, we are one of the least well placed to cope with the current downturn. The Government need to take a good long look at themselves and ask whether they have done the right things over the past 11 years.
	Unlike my right hon. Friend the Member for Wokingham (Mr. Redwood), I am not a financial expert; I worked in the City for a mere three months before being given my marching orders. I am absolutely staggered by the amount of risk banks have taken on board. I understand from my right hon. Friend that their liabilities are somewhere in the region of £3 trillion. That is simply staggering. What amazes me about the crisis is that we have moved on from talking about £10 billion as being a lot of money to £100 billion as being the same, and we seem to have moved seamlessly on from that to speaking of trillions of pounds and trillions of dollars. It is difficult to keep up with these enormous figures, but enormous they are.
	What amazes me is that we did not learn the lessons of Barings. When Barings failed, the board of directors admitted that they really had no concept or understanding of the derivatives being traded on their trading floors. The complexity was simply beyond them. I thought and believed that the Bank of England and the Financial Services Authority had taken that into account and would do something about it to ensure that the boards of banks did not allow it to happen again. Clearly, however, it has happened again. We have seen banks leveraging their capital thirty-fold or may be more. What that means is that one pound of capital on the balance sheet—an asset of £1—is supporting £30 worth of risk or £30 worth of what could be called "make-believe money". The pyramid has been inverted, with £1 supporting £30. Like all pyramid selling schemes, it works well in the good times, but sooner or later, something goes wrong, the pyramid collapses and everyone is left picking up the pieces. On this occasion, I am afraid that it is the taxpayer who is left picking up the pieces.
	This Member of Parliament has some very humble suggestions to make. First, the FSA has to tell banks that if they are going to trade in financial derivatives, as they will continue to do, we have to be able to understand them. We must understand where the risk resides. If we do not understand them, we should say, "Buddy boy in the red braces, you are not going to trade them." There has always been a sneering regard in investment banks for the FSA. They say, "We employ people who earn £3 million a year, and these thickos in the FSA understand nothing, as they can afford to employ people earning only £250,000 a year?" Well, in this case that is a good thing. All the rocket scientists in the investment banks will have to sit down and come up with financial instruments that mere mortals—talented people, but still mere mortals—understand, and if they do not understand them, they will not be traded. [ Interruption.] Does anyone want me to give way? I think that someone does, so I give way to him. I am sorry; I have taken my glasses off, so I am completely blind.

Charles Walker: My hon. Friend makes a good point. The regulators must understand the position and be comfortable with it. Some derivatives will be more risky than others. The regulator will say "If you want to trade in more risky derivatives, you must have a stronger balance sheet. Your balance sheet must, in a sense, be insured against failure by carrying more capital." That too will act as a disincentive to some of the more outrageous financial instruments.
	Let me move from the exciting world of investment banking to the world of retail banking. Some of those present—including, I am afraid, many Opposition Members—speak of the "tsunami", the crisis that began in America in the sub-prime market and swept over to the United Kingdom. Let us be perfectly honest. I do not think that Northern Rock trades in the United States, I do not think that Bradford & Bingley trades in the United States, and I am sure that HBOS does not have a mortgage business in the United States; yet those banks, and may be others, were offering people outrageous mortgages. They were offering 125 per cent. of a property's value, and they were offering self-certification. They were saying "Pick a number, and we will not challenge you". No wonder we have a home-grown crisis in this country.
	I have to ask why on earth the regulator allowed the banks to get away with that. It was not done in secret; there were flaming advertisements all over their branches letting people know what a great deal they would get. If that did not set alarm bells ringing in the FSA, I do not know what would.

Andrew Pelling: I thank the hon. Gentleman for his kind remarks earlier.
	Perhaps one of the fundamental reasons why such offers could be made is the fact that rating agencies often provided the necessary securities, especially in the form of inflated ratings. That applied to a large section of mortgages sold as AAA products. In many instances, neither regulators nor senior managers would even think to look at the quality of the securities that were being sold.

Charles Walker: The hon. Gentleman makes a telling point. The Minister may wish to look into it.
	I think that the relationship between rating agencies, auditors, banks and accountants has become a little too cosy. There are a few too many long lunches, pats on the back, and matey shooting parties after grouse on large estates in Yorkshire. I am making a serious point: we need to examine these relationships. If there has been a failure in a duty of professionalism, legal action may well need to be taken against the responsible individuals.
	This is a banking Bill—a banking Bill about the regulation of the banking sector—so let me return to that. I make a plea to the Minister, and to all my colleagues, that we examine, collectively, the practices of some of our high street banks at this moment in time. It is simply not acceptable for a person who exceeds his or her overdraft limit at a major high street bank by £1 to be immediately slapped by a charge of £15 a day. If it takes three or four days for the bank to send a letter to such people alerting them to the fact that they are overdrawn by £1, the charge may have increased to £60, £75 or even £90 before that person realises that they have a £1 overdraft.
	Such rates of interest are absolutely usurious. Anyone who sold them door to door would be arrested. They would be locked up and, rightly, the key would be thrown away. The practices of some of our high street retail banks are shocking and shameful, and now that they are being underpinned by the taxpayers, those taxpayers—our constituents—will have even less patience with the outrageous and, quite frankly, vicious charges levelled at some of the most vulnerable and least well-off members of society.
	Let me make a couple of other points. Banks need to strengthen their balance sheets. They want to obtain cash from wherever they can obtain it, and there is every chance that they will target good and successful businesses in pursuit of that money by raising interest rates to a level that not even a successful business in the good times could possibly hope to meet. So they will sacrifice the long-term viability of that business—that client—in return for a short-term gain to their balance sheets. I hope that the Minister is aware that that may happen, and will follow developments very closely.
	I am sorry that we have come to this stage, but it is absolutely right for the Government to be guaranteeing savers' deposits. Let us be in no doubt, however, that this is a massive transfer of wealth from some of the least well-off in society, and I shall now briefly explain why that is the case. We all have many constituents—some Members have more than others—who earn at or just above the minimum wage. They live day to day and week to week. They do not have savings—or, at least, significant savings—or mortgages, yet they will underpin this bail-out through an inevitable increase in their taxes over the next two or three years. Therefore, we need to be mindful—as I know my hon. Friend the shadow Chancellor is—that some people at the very bottom of the income scale will get very little out of this bail-out, and if we get into Government at the next general election, we must find a way of helping them. In the meantime, I hope the Government of the day are also mindful of their plight, and that they find a way of helping them.
	Having expressed those few thoughts, I will sit down, but I must first have just one passing swipe, not at the Government, but at the British Bankers Association—I believe that is what it calls itself. The brief it sent round in advance of this debate was pathetic. It should hang its head in shame; there was not a note of humility anywhere to be found in it. Yes, we need the banks in this country, but they have a lot of ground to make up, because no one trusts them anymore, and as we all know from our time in this place, trust needs to be earned. We must at present have all hands to the pump, therefore, and we will have the forensic examination of this Government's record and policies in the next few months.

Mark Hoban: People will be surprised that when debating a Bill of such importance to the future of the banking system, our proceedings start to wind up at 25 minutes to 9. It is disappointing that although plenty of Members turn up on the Government Benches to cheer nationalisation, not enough are here to talk about the important measures this Bill contains.
	When the Bill was conceived, I do not think anyone would have expected its Second Reading to take place the day after the Government pumped billions of pounds into the banking system by taking equity stakes in three banks. What happened yesterday does not lessen the need for the Bill, nor should we think the bail-out package and the Bill are enough in themselves to restore long-term stability to financial markets. Other structural changes are needed, and I will turn to them later.
	The Bill presents both an opportunity and a threat. It presents an opportunity to strengthen confidence in the UK as a place for banks, their customers and investors to do business, in the knowledge that there is a proper framework for dealing with failure so that deals do not need to be cobbled together overnight, and that the right measures are in place to help the financial services sector emerge from this crisis wiser and stronger. The threat comes from the need to ensure that sufficient safeguards are in place to reassure people that the far-reaching powers in the Bill are the last resort and not an easy substitute for effective regulation. Without proper safeguards in place, we could have a situation where the cost of capital to banks increases and that increase is passed on to their customers. There are concerns that some of the Bill's clauses—particularly clauses 42 and 43—create such uncertainty about straightforward matters such as netting off transactions that they could add to the costs of doing business in London.
	The Bill grants powers to the tripartite authorities to intervene to save a bank with actions ranging from partial transfer of its operations to another bank to nationalisation, but the safeguards governing the use of those powers will be contained in a code of practice that is yet to be published in draft form. Until the code of practice and the regulations are published, banks and others will be anxious that the powers will undermine the legal framework our financial services sector depends upon, and legal uncertainty brings risks and costs.
	I am grateful to the Minister and the Chancellor for reiterating their commitment to ensuring that the code of practice is published before we debate the relevant clauses in Committee. That is welcome not just in the House but outside. We will co-operate with the Government to get the Bill through, but we need to ensure that it strikes the right balance by tackling failure quickly and effectively without putting the wider interests of the economy at risk.
	Before I make some broad points about the Bill, I shall reflect on the themes that have emerged in this evening's speeches. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), my hon. Friends the Members for Sevenoaks (Mr. Fallon) and for Stratford-on-Avon (Mr. Maples), my right hon. Friend the Member for Wokingham (Mr. Redwood), the hon. Member for Croydon, Central (Mr. Pelling) and my hon. Friends the Members for Henley (John Howell) and for Broxbourne (Mr. Walker) all made important speeches about the fate of the banking sector.
	From the Labour Benches, the right hon. Member for West Dunbartonshire (John McFall), the Chairman of the Treasury Committee, outlined some of his concerns following its inquiry into the draft legislation. The Committee has produced two powerful reports, which will help to inform the Committee stage. The hon. Members for South Derbyshire (Mr. Todd) and for Edinburgh, North and Leith (Mark Lazarowicz) spoke about their concerns, and the latter particularly reflected on the impact on his constituents of the changes to the ownership of Scottish banks.
	The right hon. Member for Holborn and St. Pancras (Frank Dobson) gave a virtuoso performance, which made those of us who were not in the House in the early '90s think about the sort of speeches that we might have been able to hear as daily occurrences rather than on a special occasion such as tonight. I wonder how he must have coped in the Cabinet when the then Prime Minister Tony Blair and his colleagues willingly embraced big business, and how he must have held his nose when talking about some of the reforms that contributed to the problems that caused the crisis in today's banking sector.
	Some themes emerged clearly from the debate, one of which was the need for prompt payment from the Financial Services Compensation Scheme to reassure bank customers. It is unfortunate that the Government were unable to bring forward legislation relating to the scheme earlier, because that would have given consumers more confidence. Another theme has been the need to avoid similar crises in future through further reforms to the regulatory system. The Bill is quite narrow, and more work is needed to put in place the right institutional mechanism and arrangements to prevent the recurrence of asset price bubbles in future.
	A number of my right hon. and hon. Friends expressed concern about the reforms to the financial regulation system introduced in 1997 by the Labour Government's then Chancellor, now the Prime Minister. There is a sense that to avoid future crises, we need to strengthen the role of the Bank of England in the regulatory system. We have particular ideas about that, and I shall touch on them later. Several hon. Members highlighted the challenge that arises when the Bank of England focuses on controlling inflation through interest rates. What mechanism can it use to try to control asset price inflation? I shall refer later to a mechanism that should provide a new weapon in the armoury to ensure that there are controls over asset prices in future.
	Several Members mentioned the long gestation period of the Bill. It was in January that the first consultation took place, and there was a further round of consultation in July. The Bill was published and received its First Reading last week. One almost senses from some people that the need for the Bill popped out only last summer with the problems of Northern Rock. The reality is that prior to that both the Governor of the Bank of England and the then chairman of the FSA, Sir Callum McCarthy, said that there needed to be a proper review of the arrangements in the UK for dealing with bank failure, so the issue is not just a recent one. It should have been on the Government's agenda for some time, and it is disappointing that it has taken so long to get to this Bill. Of course, we do not intend to impede its progress, and we want to ensure that it is on the statute book when the Banking (Special Provisions) Act 2008 expires in February next year.
	We need to scrutinise some areas of the Bill further, because they remain unclear, and not only because we await draft regulations or the code of practice. For example, the Public Bill Committee will need properly to address issues associated with the Financial Services Compensation Scheme. Conservative Members believe that the scheme should not be pre-funded. The Bill gives the power to set up a pre-funded scheme, but we believe that setting up such a scheme is against the interests of consumers and the financial services sector as a whole. We also need to address issues associated with how customers should be covered. Will they be covered for £50,000 per brand or per bank? The FSA is consulting on those issues, but it is important that hon. Members have the opportunity to debate them in Committee.
	The Bill refers to the need to pay depositors as soon as possible and, again, the FSA is consulting on how that might be brought about. Hon. Members should debate that issue during the passage of this Bill. We also need to work out how we balance the need for depositors to be paid promptly, within seven days of a bank's being taken into the special resolution regime, and the need to mitigate the losses that could be faced by other types of creditor, including those who provide debt and other forms of capital to the bank—obviously, that capital is then lent on to businesses and households. We need to resolve that tension.
	The Bill is about just one element of the changes we need to put in place to restore the stability of the financial sector and the economy as a whole. The Bill focuses primarily on how to deal with a failing bank. It also legislates for the changes that strengthen the Bank of England's governance and establishes the financial stability committee. One or two hon. Members, including the hon. Member for South Derbyshire, discussed the Treasury Committee's findings in that area, which were critical of the arrangements in the Bill. I am sure that if he gets his wish and serves on the Public Bill Committee, he and others will wish to debate that fully.
	The Bill could have been the means to put long-term reforms in place. For example, the Conservatives believe that it is vital to strengthen the independence of the Bank of England, and we want the Governor and the members of the Monetary Policy Committee to be appointed for a longer single term, rather than for up to two terms. Such an approach would put beyond doubt any prospect that reappointment could influence the decisions of MPC members or the Governor and his deputies. We think that it is important to strengthen, rather than weaken, the independence of the Bank of England. Unlike the Liberal Democrats, we are not going to ditch the independence of the Bank when the going gets tough.
	The Conservatives believe that the Bank of England's role in regulation could be strengthened too. That issue has been discussed by my hon. and right hon. Friends. When the Prime Minister broke the link between the Bank of England and the supervision of individual banks, he created a system that focused on the risks to individual banks and not on the risk to the market. By breaking that link, debt was allowed to grow uncontrollably across the system, and we are paying the price for that today. To avoid repeating that mistake again, we believe that the Bank should write an open letter to the FSA, setting out its understanding of market risks and requiring the FSA to respond. Through that process we would establish a mechanism that would lead to banks increasing their capital to protect themselves from the risk of default. That is a way of trying to regulate the debt that is in the market and, thus, to control asset price inflation. The Prime Minister himself recognised the importance of these measures when he spoke yesterday. He said:
	"In future regulatory systems there will be both greater attention to issues of solvency and liquidity and probably a pro-cyclical attitude where in a period of growth you have got to lay aside more for the possibility that there will be contractions".
	Some of us might call that fixing the roof when the sun is shining, and it is a far cry from the Prime Minister's mantra of no return to boom and bust. He now recognises the existence of contractions, having spent 10 years trying to deny the existence of the economic cycle. Reality has now caught up with the Prime Minister. Changes to the capital rules are not only a matter for UK regulation: the rules in Basel II should be altered to reflect that priority.
	There are changes too that we need to make to the FSA to strengthen it, so that it can be more effective in the regulation of the financial services sector, including improving the mix and experience of staff so that the regulator is able to challenge regulated businesses more effectively to avoid some of the problems of its supervision of Northern Rock. As my hon. Friend the Member for Sevenoaks pointed out, given the increased availability of more sophisticated financial products in the retail market and the increase in opportunities for people to borrow, we need to improve the financial education of people in this country so that they have a greater appreciation of the risks of financial products and can plan for their own financial circumstances with greater confidence. That would help to avoid the present situation in which, at a moment of economic uncertainty, the UK has £1.4 trillion of personal debt.
	The Bill cannot be seen in isolation. It must be seen as part of a wider plan to restore confidence in financial markets and in the wider economy. There must be other reforms to strengthen the regulatory system to prevent problems from arising in the future. The Prime Minister put in place a framework that helped to create the age of irresponsibility—it allowed debt to grow to an unsustainable level and taxpayers are paying the price for that today. We need to reform that framework if we are to return to the financial stability this country needs. This Bill addresses how to deal with the failure of a bank, but we need a regime that prevents that failure from happening. If we are to avoid asking taxpayers to pay for future problems, then this Bill is only the start of rebuilding confidence in the financial system and not the final word.

Andrew Pelling: Will the Government be cognisant of the fact that however valuable European co-operation has been during this financial crisis, there are also important national interests in terms of any changes to regulation that could compromise the primacy of the City of London in the European financial markets?

Ian Pearson: Yes, as my right hon. Friend the Chancellor has said clearly, we will do whatever it takes to bring stability to the banking system. The fact that we have taken this integrated package of actions and reforms has been widely welcomed by the financial community. It is a programme that is being adopted by other countries in Europe and, indeed, partly in the United States, depending on their own circumstances. We believe that it is the right path to take.
	Let me turn to the special resolution regime, which has been the subject of much of the debate. It will replace the temporary powers taken in the Banking (Special Provisions) Act 2008. When a bank gets into difficulties, they can be resolved through normal regulatory interventions or voluntary action. However, as we have seen recently, bank failures will sometimes occur and they can damage confidence, disrupt financial markets, harm depositors and generate significant costs to business and the economy as a whole. The objectives of the SRR include protecting and enhancing financial stability and confidence in the banking system, protecting depositors and protecting public funds.
	The SRR provides the authorities with a range of tools to meet those objectives, including the transfer of a bank or its business to a private sector purchaser, to a bridge bank—which I know was welcomed by the hon. Member for Dundee, East (Stewart Hosie)—and temporary public ownership. Further, a new bank administration procedure is to be put in place to support partial transfers of a bank's business. The Bill also creates a new insolvency process for banks that can be used where appropriate to enable prompt FSCS payments to eligible depositors and also provides for the winding-up of the bank's affairs.
	By setting out a clear and credible statutory resolution regime to address failing banks, which removes control from the bank's management, the Bill provides a strong incentive for banks and their directors to take action to prevent their businesses getting into difficulties.
	We can debate in Committee in greater detail some of the issues raised such as the trigger mechanism and the role of the Bank of England, but I note what the shadow Chancellor has said—that although he is raising concerns, he does not want to resist the overall thrust of the Government's conclusions.

John Stanley: I note that in this era of collapses, even the debate on the Government's Banking Bill has collapsed, but I am delighted to have additional time for the all-important subject of the South Central rail franchise.
	I start by offering my warm congratulations to the Under-Secretary of State for Transport, the hon. Member for Gillingham (Paul Clark), on his promotion to ministerial rank. He may be wondering whether his time as a Minister will be measured in weeks, months or years, but whatever it is, I wish him well during his period in office. I am sure that as a fellow Kent Member, he will have more than a passing interest in my remarks during the debate.
	The Minister may have asked himself why I sought a debate on the South Central rail franchise. The principal reason is that I recognise that the Government are rightly preoccupied with improving rail services in a north-south direction, predominantly into London. What dismays me and my constituents is that the Government appear to have lost sight almost completely of the vital importance of east-west connections from Kent, particularly down the Tonbridge to Redhill line with services through to Gatwick. I shall address most of my remarks to that issue.
	I shall start by setting out the facts of demand from air travellers using Gatwick airport. I hope the Minister will not be tempted by what may be in his brief to reply that there does not appear to be very much demand for rail services from Kent through to Gatwick. If he ventures such a comment, I shall reply that the very existence of through rail services from Tonbridge down the Tonbridge-Redhill line to Gatwick is one of the best kept secrets of services available in the entire rail network. There has been a blatant and almost total lack of adequate marketing of those services on the Tonbridge to Redhill line by both Southern and South Central—an abject marketing failure. I do not believe that the present utilisation of the line in any way reflects what it might be if the line were properly marketed.
	The facts relating to demand were well set out in the 2004 Brighton main line route utilisation strategy. That shows, interestingly, after demand from Gatwick airport air travellers from the greater London area, the next highest area of demand is the county of Kent. It is the second highest source of air passenger travellers to Gatwick airport. The 2004 study shows that at that point 1.8 million people a year were travelling from Kent to Gatwick airport.
	The present position was set out in an important letter from Mr. Bernard Ashley, the manager responsible for the planning and transport strategy at BAA, to the Department for Transport, dated 23 January 2008. He said:
	"In 2006, some 11% of Gatwick's passengers, that is around 3 million trips, started or ended their journey in Kent. That number will increase in line with the overall airport growth. The actual number travelling from the Tonbridge district, Ashford and the East Kent towns, for whom the Tonbridge rail link is most convenient, will obviously be lower but is still estimated to be over 1 million passengers per annum."
	May I just register that with the Minister? That is the position as accurately as we know it today—a huge potential demand for travel by rail of 1 million people from Tonbridge, Ashford and east Kent wanting to use Gatwick airport.
	Then we come to the future, which was set out for me in a later letter of 25 June 2008 from the chief executive of BAA, Mr. Colin Matthews. On the future level of demand at Gatwick, he said:
	"Our Airport Surface Access Strategy already incorporates a target of 40% public transport use by 2015, when the numbers using the airport are forecast to increase from 35m to close to 40m."
	Therefore, at Gatwick we have absolutely clear evidence of rising demand for the use of the airport coupled with a substantial demand from people whose journeys originate in Kent.

Andrew Pelling: I hope that it does not take the right hon. Gentleman by surprise that someone else is present supporting his concerns. I am at the other end of the line in Croydon. The development of Gatwick is important to the development of the economy in south London. With a limited service to Tonbridge from East Croydon, many residents have to travel to London to get down to Kent. Does he agree that that must emphasise the importance of taking the best advantage of those rail facilities that exist between Redhill and Tonbridge?

John Stanley: I am grateful to the hon. Gentleman. He touches on an important point for a considerable number of my constituents. Large numbers travel to London, but they do not all go into central London. A number go to and from East Croydon as their point of work every day.
	Against the background of that demand, not surprisingly, when those who these days are termed stakeholders—in other words those representing the rail passenger interests—came to respond to the Brighton main line utilisation survey, they made a clear recommendation, which was set out in appendix A of the survey, entitled "Stakeholder aspirations", which I thought was somewhat condescending. The recommendation states:
	"New fast service from Gatwick to Tonbridge, Ashford and the Kent coast"—
	an absolutely logical and correct recommendation in the light of the self-evident scale of the demand for east-west services into Gatwick from Kent.
	Against that background of rail travellers' wishes and the clear evidence of demand, one then comes to the Government's response. That response, from a Government supposedly committed to enhancing travel by public transport and reducing greenhouse gas emissions from car use, is to smash—that is not an exaggerated word—east-west rail travel between Tonbridge and other parts of Kent along the Tonbridge to Redhill line into Gatwick. I shall explain why I have used that word, advisedly, and why I believe it to be absolutely accurate.
	The Government propose to take three steps, each of which, and taken together, will result in virtually nil use of the Tonbridge to Redhill rail service to Gatwick. First, the Government are ending the existing and very important through services to Gatwick from west Kent along the Tonbridge to Redhill line. Perhaps the Minister has been briefed to reply that although the through services are ending, indirect services can still be used via a change at Redhill. I do not know whether he has ever done the change at Redhill, but it is not particularly easy for passengers.
	Each and every passenger makes the straight decision on every trip to or from Gatwick airport about whether to go by car or train; every impediment makes it more likely that they will go by car. As the Minister may or may not know, if a person goes from Tonbridge to Gatwick, making the change at Redhill, they have to go down the steps, along the subway and up the steps on the other side. If they are taking the family and are heavily laden, with a pushchair and everything else, that is quite an operation. Furthermore, for the disabled it is a non-starter.
	Ending the through services to Gatwick is a serious move. It is being coupled with an equally disastrous decision: to replace the current half-hourly service during off-peak periods with one that takes place only once every hour. That is a fundamentally important difference in time scale. Presumably the Government are familiar with them, but extraordinarily there is no matching of Gatwick aircraft arrival and departure times with the timing of the morning and evening peaks for rail travellers. The flights come in and out all through the day. With only an hourly service, someone going to or coming from Gatwick will be certain to take a car rather than the train. I am sure that the Minister uses Gatwick regularly; I certainly do. Someone there with a maximum of 29 minutes to wait for a train might be prepared to wait. However, I am certain that virtually every passenger faced with the prospect of waiting 59 minutes would say, "No—blow the train! I'll go by car instead."
	The final nail in the coffin of the through services to Gatwick is the proposed change in the franchise arrangements. That crucial change is to remove Southeastern in toto from providing services along the Tonbridge-Redhill line and to give those services exclusively to South Central Trains. That is disastrous because Southeastern provides virtually all the rail services in Kent; the Minister knows that well from his own constituency background. Southeastern can market the services and generate the demand along the Tonbridge-Redhill line. As far as South Central—Southern—is concerned, it is only a small part of its total operation. The Tonbridge-Redhill line is just a bit player as far as Southern is concerned, and it cannot access the rest of the market through to Kent. The transfer of the franchise from South Eastern to South Central is a final reason why the combination of those three factors will mean for air travellers virtually the extinction of the use of the Tonbridge-Redhill line for services to Gatwick.
	As the Minister will not be surprised to know, that situation and that forecast is not just being made by me, but by every group representing rail travellers all over Kent—the local authorities and the relevant rail traveller groups. In the representations that his Department has received, the criticisms of the extinction of the use of the Tonbridge-Redhill line by those travelling by rail to Gatwick have been a universal chorus. His Department has heard it from Kent county council, Tonbridge and Malling borough council, Sevenoaks district council, Edenbridge town council, the Edenbridge and District Rail Travellers Association and from Tonbridge Line Commuters. I can tell the Minister that those last two representative organisations of rail travellers have as their honorary secretaries two extremely independent and most expert individuals, Mr. John Bigney and Mr. Lionel Shields, who provide an outstanding, expert and independent service to those to organisations.
	The only body that has been barely critical of the Government's proposal is, extraordinarily, the very body that is meant to speak up for rail travellers: the Government-appointed quango Passenger Focus. If there ever was an issue on which one would have expected them to make a good lion's roar for rail travellers, it would be the threatened extinction of the Tonbridge-Redhill line to Gatwick for many of passengers. In its response to the Department, what did Passenger Focus say? All it offered was this:
	"Future options to enhance or restore the East West links provided by services between Gatwick-Redhill-Tonbridge should not be overlooked."
	That is all they could say—frankly, an absolutely pathetic whimper.
	As far as I am concerned, that is all of a piece. As the Minister will recall, we used to have the highly effective community health councils, which the Government wrapped up and replaced with Patient Focus, which has been conspicuous in its ineffectual nature. The highly effective regional rail user consultative committees have been wrapped up and replaced by the ineffectual Passenger Focus, and now I am dismayed to see that the Government are wrapping up the consumer bodies that deal with energy and replacing them with a body called Energy Focus. If the past track record is anything to go by, that will be equally ineffectual.
	Returning to the South Central franchise, there are other points that I want to put to the Minister. It is not just rail travellers to Gatwick who will lose out under the Government's proposals on the Tonbridge-Redhill line. It is a significant issue for many schoolchildren. As the Minister, with his Kent background, will know, there is no secondary school west from Tonbridge to the Surrey border. Large numbers of schoolchildren travel along that line from Kent and the Edenbridge area—indeed, some come from Surrey and even from Sussex—to the schools in Tonbridge and Tunbridge Wells. The implications of reducing off-peak services to only one hour on the Tonbridge-to-Redhill line are liable to include a significant increase in the school day for considerable numbers of schoolchildren. That is another factor that the Minister should weigh in his mind.
	There is another factor that arises from the transfer of the franchise along the Tonbridge-Redhill line from South Eastern Trains to South Central. As the Minister may be aware, the Sevenoaks tunnel is one of the longest in the country. It is a Victorian tunnel and from time to time it needs to be shut for maintenance and repair. It is inconvenient when that happens, but it has happened periodically. The diversion line from the main London-Sevenoaks-Tonbridge line goes down the Redhill-Tonbridge line. Once the transfer of the franchise takes place, however, train drivers on South Eastern Trains will no longer have any familiarity with their main diversion route, the Redhill-to-Tonbridge route. I do not believe that the issue has been properly considered by the Department, but it is a serious one and, potentially, a safety issue.
	I also want to make a couple of points about the other major line going through Edenbridge in my constituency, which is the Uckfield line to London. There is no doubt at all that some of the villages in my constituency that are served by stations on that line currently have an unjustifiably poor service. That is brought out well in the submission that the Edenbridge and District Rail Travellers association made in response to the Department.
	For example, for those who want to commute to and from Cowden and Hever stations in my constituency, there are no trains from London in the evening rush hour between 4.33 pm and 7.08 pm. That is a gap in the evening peak of two hours and 35 minutes between those two trains. Just as bad, the last train down the Uckfield line from London, which leaves at 10.05 pm, does not stop at Cowden or Hever either. They are villages, not towns, but I assure the Minister that they are villages from which a considerable number of people commute to London each day. Most of them have to drive round the country quite unnecessarily because there is an inadequate service for those two villages.

Andrew Pelling: Can the issue also be seen from the point of view of additional traffic, which will come to Croydon? Many of the hon. Gentleman's constituents who do not have a reliable rail service will inevitably have to travel to Coulsdon or Croydon, and will therefore end up congesting the roads between his constituency and south London.

John Stanley: I am coming to that very point, which is the issue of capacity on the Uckfield line. The Uckfield line suffers because insufficient stops are made by particular trains, and because it is currently experiencing serious overcrowding due to of an insufficiency of trains, the reason for which I shall explain in a moment. Some people who commute every day now have to stand all the way from Edenbridge into London. That is simply not acceptable, given the distance that they are travelling and the money that they are paying for their season tickets.
	The reason for such overcrowding is a serious insufficiency of diesel units. As I hope the Minister knows, the Uckfield line is one of the relatively few left in the southern region for which the previously privatised rail companies—before they were nationalised after the war—must have run out of money and were unable to electrify various bits. One of those bits is along the Uckfield line. It is therefore necessary to use diesel engines on it. I put it to the Minister that it is particularly disappointing that, despite a demonstrable shortage of diesel engines, there is no requirement in the Government's franchise document for the winner of the South Central franchise to introduce or procure more diesel units or to deal with the capacity problems. That is a serious omission.
	I have referred previously to facilities for the disabled at Redhill, and I want to return to that topic tonight. On the Tonbridge-Redhill line, and at both the two Edenbridge stations, the facilities for the disabled are totally inadequate. Last year, a constituent of mine took part in paraplegic games on the continent in Europe. He came home to Edenbridge in his wheelchair, but the only way in which he was able to get out of Edenbridge station quickly was to be taken across the tracks in his wheelchair by his relatives. That is self-evidently pretty dangerous, and it is disgraceful that, in this day and age, disabled people should have to be carried across the tracks because of the inadequacy of facilities for the disabled.
	I am in no doubt that, in the South Central franchise consultation document, the Government have made a very serious error of policy in emasculating the use of the Tonbridge-Redhill line as far as services into Gatwick airport are concerned. I can only urge the Minister in the strongest terms to scrap that policy and start again. As the stakeholders said in 2004—it holds good today, just as it did then—the point from which he should start is with a
	"new fast service from Gatwick to Tonbridge, Ashford and the Kent coast."

Paul Clark: I congratulate the right hon. Member for Tonbridge and Malling (Sir John Stanley) on securing this debate, and on providing the House with this opportunity to discuss these important issues based on the new South Central rail franchise. I am delighted that he has had the opportunity to speak for more than the traditional amount of time. I should also like to thank him for his kind words about my appointment. I assure him that I am not thinking about days, weeks or months; rather, I am focusing on the task in hand, for however long that might take. I now want to concentrate on trying to answer some, if not all, of his questions, within the limits that constrain me in regard to the current franchise process.
	Our railway service now has more people and more freight moving across the country than in the past 50 years. It is safer than before, and its reliability is much greater than before. In the command paper on a sustainable railway, which was launched in July, we committed further record levels of investment with the aim of doubling the numbers on the railways and the freight service and making them safer, as well as tackling the carbon footprint of the rail industry. That is the background to where we are, with record use of our railway system, which I am sure that the right hon. Gentleman recognises as very important. In dealing with his comments, it may be helpful if I explain where we are with the franchise process and pick up on some of the issues that he raised.
	The Department for Transport issued a general advertisement for the franchise in May this year and announced in August that four groups had pre-qualified to receive an invitation to tender later this year. Those groups were National Express, the operator of the East Coast, c2c and East Anglia franchises; Stagecoach, operator of South West Trains, East Midlands Trains and a significant shareholder in Virgin Trains; GoVia, the current operator, which is also the operator of Southeastern Trains and London Midland; and NedRailways, the Dutch railway operator, which also operates Northern and Merseyrail in the consortium with Serco.
	It is our intention that the formal invitation to tender will be issued in early November, with bids received in February next year. A final decision on who will be awarded the franchise will be announced in the summer of 2009. The new franchise will come into operation, as I am sure the right hon. Gentleman is aware, on 20 September 2009 and will run for five years and 10 months, with the final year dependent on the operator having achieved a number of performance targets. There will be an optional extension of an additional two years, which the Government will be able to introduce at their own discretion.
	I am sure that the right hon. Gentleman is equally aware that this franchise will probably be shorter than the average franchise of seven to 10 years, but he will recognise equally that that is because of the substantial investment going on, which will benefit his constituents as well as many others among the travelling public, with the implementation of the £5.5 billion Thameslink programme to which the Government gave the go-ahead in the summer last year. The completion of that Thameslink programme in 2015 may require significant changes to the franchise map in 2015; thus a period of five years and 10 months gives the Government maximum flexibility in that regard without the need to carry out costly and time-consuming franchise termination negotiations. That, in turn, will save the taxpayer money.
	I was interested to hear the right hon. Gentleman's comments about stakeholder engagement and, particularly, about Passenger Focus. He will know that extensive discussions have taken place in the build-up to the franchise consultation. The Department carried out briefing events with local authorities in January this year with the aim of gaining a broad understanding of key local issues in advance of the outline work of the franchise specification.
	In May, we launched the formal consultation document, setting out the objectives for the franchise and the key issues that we were seeking to address. Consultation events were also held with stakeholders in Croydon, Worthing and Eastbourne, and 60 organisations were represented at those events. Alongside that, we have received some 156 written consultation responses. We remain grateful, of course, for the time people have taken to address those issues.
	The right hon. Gentleman will be well aware that Passenger Focus has been strengthened to ensure that there is a good voice for the travelling public, whether it be for rail or bus passengers, who are dealt with in the Local Transport Bill. This is the first time that Passenger Focus has provided detailed advice to the Secretary of State about the issues that the new franchisee should be required to address. The right hon. Gentleman rightly asked for that document to be placed in the Library, and that will be done.

Paul Clark: I was just coming on to precisely that point in terms of the potential customers for rail services. The Gatwick services have been in existence for more than 10 years. The right hon. Gentleman said in his opening comments that the Minister would probably respond by saying services were not being used and were under-utilised. That is exactly what the position has been—the demand has been very low. Initially, those services were operating from as far afield as the Medway towns, but the retention of two trains per hour on the corridor cannot be justified on the levels of usage of the services during that period, when there are other competing pressures for an increase in operational requirements.

Andrew Pelling: Will the Minister give a little more background as to why it is that the welcome improved north-south provision on that route compromises the ability of trains to come in from the east in Kent? Is there a possibility that one of the reasons why this compromise has had to be made is the Government's previous decision to support too much capacity for the Gatwick Express, bearing in mind that that service also seems often to run far below capacity, while at the same time it compromises other services that might well draw in passengers from elsewhere to the important Gatwick stop?